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                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549


                                 FORM 10-K



(Mark One)

[X]      Annual report pursuant to section 13 or 15(d) of the Securities
         Exchange Act of 1934 [Fee Required] for the fiscal year ended
         December 31, 1995.

[_]      Transition report pursuant to section 13 or 15(d) of the Securities
         Exchange Act of 1934 [No Fee Required] for the transition period
         from _________ to _________.


Commission File Number  001-05647
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                                MATTEL, INC.
                                ------------
             (Exact name of registrant as specified in its charter)


             Delaware                                           95-1567322
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(State or other jurisdiction                               (I.R.S. Employer
 of incorporation or organization)                         Identification No.)



333 Continental Boulevard, El Segundo, California                   90245-5012
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(Address of principal executive offices)                            (Zip Code)


(Registrant's telephone number)                                 (310) 252-2000
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          Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange Title of each class on which registered - ------------------- --------------------- Common stock, $1 par value (and New York Stock Exchange the associated Preference Pacific Stock Exchange Share Purchase Rights) 6-7/8% Senior Notes Due 1997 New York Stock Exchange 6-3/4% Senior Notes Due 2000 (None)
Securities registered pursuant to Section 12(g) of the Act: (None) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on March 18, 1996 was $7,582,227,581. Number of shares outstanding of registrant's common stock as of March 18, 1996: Common Stock - $1 par value -- 276,976,350 shares DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Mattel, Inc. Annual Report to Shareholders for the year ended December 31, 1995 (Incorporated into Parts I, II and IV). 2. Portions of the Mattel, Inc. 1996 Notice of Annual Meeting of Stockholders and Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's fiscal year (Incorporated into Part III). ================================================================================ PART I ------ ITEM 1. BUSINESS - ------- -------- Mattel is the leading worldwide designer, manufacturer and marketer of toys. The Company's four principal core brands are BARBIE fashion dolls and doll clothing and accessories; FISHER-PRICE toys and juvenile products, including the POWER WHEELS line of battery-powered, ride-on vehicles; the Company's Disney-licensed toys; and die cast HOT WHEELS vehicles and playsets, each of which has broad worldwide appeal. Additional core product lines consist of large dolls, including CABBAGE PATCH KIDS; preschool toys, including SEE 'N SAY talking toys; the UNO and SKIP-BO card games; and the SCRABBLE game, which the Company owns in markets outside of the United States and Canada. Revenues for 1995 of $3.6 billion were a record level for the Company. As used herein, unless the context requires otherwise, "Mattel" or the "Company" refers to Mattel, Inc., and its subsidiaries, and "Fisher-Price" refers to Fisher-Price, Inc., a Delaware corporation and wholly-owned subsidiary of Mattel. Mattel was incorporated in California in 1948 and reincorporated in Delaware in 1968. Its executive offices are located at 333 Continental Boulevard, El Segundo, California 90245-5012, telephone (310) 252-2000. COMPETITION AND INDUSTRY BACKGROUND - ----------------------------------- Competition in the toy industry is based primarily on price, quality and play value. In recent years, the toy industry has experienced rapid consolidation driven, in part, by the desire of industry competitors to offer a range of products across a broader variety of categories. In the United States, the Company competes with several large toy companies, including Hasbro, Inc. and Tyco Toys, Inc., as well as a number of smaller toy companies. The larger toy companies have pursued a strategy of focusing on core product lines. Core product lines are those lines which are expected to be marketed for an extended period of time, and which historically have provided relatively consistent growth in sales and profitability. By focusing on core product lines, toy manufacturers have been able to reduce their reliance on new product introductions and the associated risk and volatility. The juvenile products market, in which Fisher-Price is one of the leading companies, is more fragmented. The more significant competitors in this area include: Gerry Baby Products Company; Century Products Company; Graco Children's Products, Inc.; Cosco, Inc.; and Evenflo Juvenile Furniture Company, Inc. The toy industry is also experiencing a shift toward greater consolidation of retail distribution channels, such as large specialty toy stores and discount retailers, including Toys R Us, Wal-Mart, Kmart and Target, which have increased their overall share of the retail market. This consolidation has resulted in an increased reliance among retailers on the large toy companies because of their financial stability and ability to support products through advertising and promotion and to distribute products on a national basis. These retailers' growing acceptance of electronic data interchange has provided toy manufacturers with an ability to more closely monitor consumers' acceptance of a particular product or product line. 2 Over the last ten years, toy companies based in the United States have expanded their international marketing and manufacturing operations. The Company believes a strong international distribution system can add significantly to the sales volume of core product lines and extend the life cycles of newly-developed products. SEASONALITY - ----------- Sales of toy products at retail are seasonal, with a majority of retail sales occurring during the period from September through December. Consequently, shipments of toy products to retailers are greater in the third and fourth quarters than in each of the first and second quarters combined. As the large toy retailers become more efficient in their control of inventory levels, this seasonality is increasing. In anticipation of this seasonal increase in retail sales, the Company significantly increases its production in advance of the peak selling period, resulting in a corresponding build-up of inventory levels in the first three quarters of the year. In addition, the Company and others in the industry develop sales programs, including offering extended payment terms, to encourage retailers to purchase merchandise earlier in the year. These sales programs, coupled with seasonal shipping patterns, result in significant peaks in the third and fourth quarters in the respective levels of inventories and accounts receivable, which contribute to a seasonal working capital financing requirement. See "Seasonal Financing." PRODUCTS - -------- The Company has achieved consistent sales and earnings growth by focusing on a number of core product lines supplemented by various new product introductions. The Company's four strongest core product lines are BARBIE fashion dolls and doll clothing and accessories; FISHER-PRICE toys and juvenile products, including the POWER WHEELS line of battery-powered, ride-on vehicles; the Company's Disney-licensed toys; and die-cast HOT WHEELS vehicles and playsets, each of which has broad worldwide appeal. Additional core product lines consist of large dolls, including CABBAGE PATCH KIDS; preschool toys, including SEE 'N SAY talking toys; the UNO and SKIP-BO games; and the SCRABBLE game, which the Company owns in markets outside of the United States and Canada. Core product lines are expected to be marketed for an extended period of time and historically have provided relatively consistent growth in sales and profitability. For the year ended December 31, 1995, core products accounted for approximately 87% of sales. In order to provide greater flexibility in the manufacture and delivery of products, and as part of a continuing effort to reduce manufacturing costs, the Company has concentrated production of most of its core products in Company-owned facilities and generally uses independent contractors for the production of non-core products. With respect to new product introductions, the Company's strategy is to begin production on a limited basis until a product's initial success has been proven in the marketplace. The production schedule is then modified to meet anticipated demand. The Company further limits its risk by generally having independent contractors manufacture new product lines in order to minimize capital expenditures associated with new product introductions. This strategy has reduced inventory risk and significantly limited the potential loss associated with new product introductions. 3 New product introductions in 1995 included BUTTERFLY PRINCESS BARBIE doll, STROLLIN' FUN BARBIE and KELLY dolls, Teacher BARBIE doll, BARBIE all occasion cards that come with a fashion, CABBAGE PATCH KIDS dolls, the addition of a series of fashion dolls based on the animated feature "Pocahontas" to the Company's Disney line, the addition of SMUD to the Company's Nickelodeon line, STREET SHARKS action figures and FISHER-PRICE outdoor play equipment. New product introductions in 1996 will include Olympic Gymnast BARBIE doll, Songbird BARBIE doll, SHOPPIN' FUN BARBIE and KELLY dolls, JEWEL HAIR MERMAID BARBIE doll, TWIRLING BALLERINA BARBIE doll, BARBIE DREAM HOUSE, a Victorian-style fold-up house, the addition of a series of fashion dolls and action figures based on the animated feature "Hunchback of Notre Dame" to the Company's Disney line, COMPUTER CARS computer disks to the HOT WHEELS line, CONSTRUX building sets, BARBIE FASHION DESIGNER CD-ROM, FISHER-PRICE WONDER TOOLS and FISHER-PRICE CREATIVE EFFECTS INSTANT CAMERA and picture packs. INTERNATIONAL OPERATIONS - ------------------------ Revenues from the Company's international operations represented approximately 40%, 41% and 40% of total consolidated revenues in 1995, 1994 and 1993, respectively. Products which are developed and marketed successfully in the United States typically generate incremental sales and profitability when marketed through the Company's international distribution network. Generally, products marketed internationally are the same as those marketed domestically, although some are developed or adapted for particular international markets. The Company sells its products directly through its marketing operations in Argentina, Australia, Austria, the Benelux countries, Canada, Chile, Colombia, France, Germany, Greece, Italy, Japan, Mexico, New Zealand, Portugal, Scandinavia, Spain, Switzerland, the United Kingdom, Venezuela, and in certain areas of Eastern Europe and Asia. In addition to direct sales, the Company sells principally through distributors in certain parts of Latin America, the Middle East, South Africa and Southeast Asia. It also licenses some of its products to other toy companies for sale in various other countries. See "Licenses and Distribution Agreements." The strength of the US dollar relative to other currencies can significantly affect the revenues and profitability of the Company's international operations. The Company hedges a majority of its intercompany purchases and sales of inventory in order to protect local cash flows and profitability from currency fluctuations. See "Financial Instruments." For financial information by geographic area, see Note 8 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference. 4 PRODUCT DESIGN AND DEVELOPMENT - ------------------------------ Through its product design and development group, the Company regularly refreshes, redesigns and extends existing product lines and develops innovative new product lines. The Company's success is dependent on its ability to continue this activity. Product design and development are principally conducted by a group of professional designers and engineers employed by the Company. License agreements with third parties permit the Company to utilize the trademark, character or product of the licensor in its product line. A principal licensor is The Walt Disney Company, which licenses many of its characters for use on the Company's products. The Company also has entered into license agreements with, among others, the following: Viacom International Inc. relating to its Nickelodeon properties; Bluebird Toys (UK) Ltd.; and Original Appalachian Artworks, Inc. A number of these licenses relate to product lines that are significant to the Company. Independent toy designers and developers bring products to the Company and are generally paid a royalty on the net selling price of products licensed by the Company. These independent toy designers may also create different products for other toy companies. The Company devotes substantial resources to product design and development. During the years ended December 31, 1995, 1994 and 1993, the Company expended approximately $111 million, $93 million and $75 million, respectively, in connection with the design and development of products, exclusive of royalty payments. See Note 10 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference. ADVERTISING AND PROMOTION - ------------------------- The Company supports its product lines with extensive advertising and consumer promotions. Advertising continues at varying levels throughout the year and peaks during the Christmas season. Advertising includes television and radio commercials and magazine and newspaper ads. Promotions include in-store displays, coupons, merchandising materials and major events focusing on products and tie-ins with various consumer product companies. To further promote the Company and its products, the Company participates in the attractions "It's A Small World" at Disneyland and Walt Disney World and "Autopia" and "Storybook Land" at Disneyland Paris under a ten-year agreement with The Walt Disney Company. The Company also participates in toy stores in Disneyland, near Disneyland Paris and in the Disney Village Market Place near Walt Disney World. Separately, a total of twenty BARBIE Boutiques are located in F.A.O. Schwarz toy stores, including the "BARBIE on Madison" boutique at the F.A.O. Schwarz flagship store in New York City. During the years ended December 31, 1995, 1994 and 1993, Mattel spent approximately $584 million (16% of net sales), $516 million (16% of net sales) and $427 million (16% of net sales), respectively, on worldwide advertising and promotion. 5 MARKETING AND SALES - ------------------- The Company's toy products are sold throughout the world. In the United States, the Company's products are distributed directly to large retailers, including discount and free-standing toy stores, chain stores and department stores, and other retail outlets and, to a limited extent, to wholesalers. Discount and free-standing toy stores continue to increase their market share. During the year ended December 31, 1995, Toys R Us and Wal-Mart accounted for approximately 23% and 12%, respectively, of worldwide consolidated net sales and were the only customers accounting for 10% or more of consolidated net sales. In general, the Company's major domestic and international customers review its product lines and product concepts for the upcoming year at showings beginning in late summer. The Company also participates in the domestic and international toy industry trade fairs in the first quarter of the year. A majority of the full-year orders are received by May 1. As is traditional in the toy industry, these orders may be canceled at any time before they are shipped. Historically, the greater proportion of shipments of products to retailers occurs during the third and fourth quarters of the year. See "Seasonality." Through its marketing research departments, the Company conducts basic consumer research and product testing and monitors demographic factors and trends. This information assists the Company in evaluating consumer acceptance of products, including an analysis of increasing or decreasing demand for its products. The Company bases its production schedules on customer orders, modified by historical trends, results of market research and current market information. The actual shipments of products ordered and the order cancellation rate are affected by consumer acceptance of the product line, the strength of competing products, marketing strategies of retailers and overall economic conditions. Unexpected changes in these factors can result in a lack of product availability or excess inventory in a particular product line. MANUFACTURING - ------------- The Company's products are manufactured in Company-owned facilities and by independent contractors. Products are also purchased from unrelated entities that design, develop and manufacture the products. In order to provide greater flexibility in the manufacture and delivery of products, and as part of a continuing effort to reduce manufacturing costs, the Company has concentrated production of most of its core products in the Company's facilities and generally uses independent contractors for the production of non-core products. Mattel's manufacturing facilities are located in the states of California, Indiana, Kentucky, Georgia, and New York, and in the United Kingdom, Mexico, the Far East (China, Indonesia and Malaysia) and Italy. In 1995, the Company opened new factories in Ontario, California and Augusta, Georgia to manufacture FISHER-PRICE outdoor play equipment. The Company also utilizes independent contractors to manufacture products in the United States, Mexico, the Far East and Australia. To protect the stability of its product supply, the Company produces many of its key products in more than one facility. 6 All foreign countries in which the Company's products are manufactured (principally China, Indonesia, Malaysia and Mexico) currently enjoy "most favored nation" ("MFN") status under US tariff laws, which provides a favorable category of US import duties. As a result of continuing concerns in the United States Congress regarding China's human rights policies, and disputes regarding Chinese trade policies, including the country's inadequate protection of US intellectual property rights, there has been, and may be in the future, opposition to the extension of MFN status for China. The loss of MFN status for China would result in a substantial increase in the import duty for toys manufactured in China and imported into the United States and would result in increased costs for the Company and others in the toy industry. The impact of such an event on the Company would be significantly mitigated by the Company's ability to source product for the US market from countries other than China and ship product manufactured in China to markets outside the US. Toward that end, the Company has expanded its production capacity in other countries. A number of other factors, including the Company's ability to pass along the added costs through price increases and the pricing policies of vendors in China, could further mitigate the impact of a loss of China's MFN status. On February 8, 1994, the European Union ("EU") adopted quotas on the importation of certain classes of toys (as well as other products) manufactured in China. The impact of these quotas on the Company's business has been significantly mitigated by shifts in demand in favor of toy categories not subject to the quotas, and by the ability of the Company to source product for the EU from countries other than China and ship product manufactured in China elsewhere. With the implementation of the Uruguay Round agreement effective January 1, 1995, all US duties on dolls and traditional toys were completely eliminated. Canada also eliminated its tariffs on dolls and most toy categories in 1995, with the exception of certain toy sets and board games which will have their duties eliminated over ten years. Meanwhile, both the EU and Japan began implementing Uruguay Round tariff reductions that, by 1999, will lower the tariffs on dolls by over 40% in the EU and by 15% in Japan. The EU and Japan are fully eliminating tariffs on several other toy categories over a period of ten years. COMMITMENTS - ----------- In the normal course of business, the Company enters into contractual arrangements for future purchases of goods and services to ensure availability and timely delivery, and to obtain and protect the right to create and market certain toys. Such arrangements include commitments for future inventory purchases and royalty payments pursuant to license agreements. Certain of these purchase agreements and licenses contain provisions for guaranteed or minimum payments during the terms of the contracts and licenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Commitments" and Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference. 7 LICENSES AND DISTRIBUTION AGREEMENTS - ------------------------------------ The Company's level of licensing activity has expanded in recent years. Royalty expense during the years ended December 31, 1995, 1994 and 1993 was approximately $104 million, $84 million and $69 million, respectively. See Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference. The Company also distributes products which are independently designed and manufactured. FINANCIAL INSTRUMENTS - --------------------- From time to time, the Company enters into foreign currency forward exchange contracts and swap agreements as hedges for payment of inventory purchases, collection of sales and various other intercompany transactions. The contracts are intended to fix a portion of the Company's product cost and intercompany cash flows, and thereby moderate the impact of foreign currency fluctuations. The Company does not speculate in foreign currencies. For additional information regarding foreign currency contracts, see Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference. SEASONAL FINANCING - ------------------ The Company's financing of seasonal working capital typically grows throughout the first half of the year and peaks in the third or fourth quarter, when accounts receivable are at their highest due to increased sales volume and Company sales programs, and when inventories are at their highest in anticipation of expected second half sales volume. See "Seasonality." Domestic borrowings for seasonal financing under the Company's revolving credit agreement are generally repaid in full by year-end from cash flows generated in the fourth quarter from sales and collection of accounts receivable. The Company maintains and periodically amends or replaces a revolving credit agreement with a commercial bank group that is utilized to finance the working capital requirements of its domestic and certain international operations. The agreement in effect during 1995, which was recently amended (see below), was renegotiated in the first quarter of 1995 to increase the total facility to $650.0 million from $500.0 million. Within the facility, up to $400.0 million was a standard revolving credit line available for advances and backup for commercial paper issuances (a three- year facility). Interest was charged at various rates selected by the Company not greater than the base rate charged by the agent bank, plus a commitment fee of up to .095% of the unused line available for advances. The remaining $250.0 million (a three-year facility) was available for nonrecourse purchases of certain trade accounts receivable of the Company by the commercial bank group providing the credit line. Outstanding receivables sold are reduced by collections and cannot exceed the $250.0 million at any time. The agreement required the Company to comply with certain financial covenants for consolidated debt-to-capital, interest coverage and tangible net worth levels. 8 Effective in August 1995, the Company entered into an agreement providing for up to $100.0 million, at each specified purchase date, of nonrecourse purchases of certain trade accounts receivable of the Company by a commercial bank. Effective in March 1996, the Company amended its revolving credit agreement. The new agreement consists of unsecured facilities providing a total of $800.0 million in seasonal financing from substantially the same group of commercial banks. The facilities provide for up to $400.0 million in advances and backup for commercial paper issuances (a five-year facility), and up to an additional $400.0 million (a five-year facility) for nonrecourse purchases of certain trade accounts receivable by the bank group. In connection with the agreement, the Company is to comply with certain financial covenants for consolidated debt-to-capital, interest coverage and tangible net worth levels. The Company believes the amounts available to it under its revolving credit agreement and foreign credit lines will be adequate to meet its seasonal financing requirements. RAW MATERIALS - ------------- Packaging materials, most plastics and zinc, which are essential to the production and marketing of toy products, are currently in adequate supply. These and other raw materials are generally available from a number of suppliers. Prices for resin and packaging were highly volatile in 1995. Resin and packaging prices generally rose during the first three quarters of 1995, but decreased dramatically by the close of the fourth quarter of 1995. While management believes that resin and packaging prices have temporarily stabilized, there can be no assurance that the volatility experienced in 1995 will not continue, resulting in a material impact on the Company's gross margins and earnings. TRADEMARKS, COPYRIGHTS, AND PATENTS - ----------------------------------- Most of the Company's products are sold under trademarks, trade names and copyrights and a number of those products incorporate patented devices or designs. Trade names and trademarks are significant assets to the Company in that they provide product recognition and acceptance worldwide. The Company customarily seeks patent, trademark or copyright protection covering its products, and it owns or has applications pending for United States and foreign patents covering many of its products. A number of these trademarks and copyrights relate to product lines that are significant to the Company, and the Company believes its rights to these properties are adequately protected. 9 The Company also licenses various of its trademarks, characters and other property rights to others for use in connection with the sale by others of non-toy and other products which do not compete with the Company's products. GOVERNMENT REGULATIONS - ---------------------- The Company's toys are subject to the provisions of the Consumer Product Safety Act, the Federal Hazardous Substances Act and the Flammable Fabrics Act, and the regulations promulgated thereunder. The Consumer Product Safety Act and the Federal Hazardous Substances Act enable the Consumer Product Safety Commission (the "CPSC") to exclude from the market consumer products that fail to comply with applicable product safety regulations or otherwise create a substantial risk of injury, and articles that contain excessive amounts of a banned hazardous substance. The Flammable Fabrics Act enables the CPSC to regulate and enforce flammability standards for fabrics used in consumer products. The CPSC may also require the repurchase by the manufacturer of articles which are banned. Similar laws exist in some states and cities and in various international markets. Fisher-Price's car seats are subject to the provisions of the National Highway Transportation Safety Act, which enables the National Highway Traffic Safety Administration ("NHTSA") to promulgate performance standards for child restraint systems. Fisher-Price conducts periodic tests to ensure that its child restraint systems meet applicable standards. A Canadian agency, Transport Canada, also regulates child restraint systems sold for use in Canada. As with the CPSC, NHTSA and Transport Canada can require the recall and repurchase or repair of products which do not meet their respective standards. The Company maintains a quality control program to ensure product safety compliance with the various federal, state and international requirements. EFFECTS OF INFLATION - -------------------- Inflation rates in the US and major foreign countries in which the Company operates have not had a significant impact on operating results for the three years ended December 31, 1995. The US Consumer Price Index increased 2.5% in 1995, and 2.7% in both 1994 and 1993. The Company is afforded some protection from the impact of inflation as a result of high turnover of inventories and benefited from inflation on the repayment of fixed-rate liabilities during these periods. EMPLOYEES - --------- The total number of persons employed by the Company and its subsidiaries at any one time varies because of the seasonal nature of its manufacturing operations. At December 31, 1995, the Company's total number of employees, including its international operations, was approximately 25,000. 10 EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The executive officers of the Company, all of whom are appointed annually by the Board of Directors and serve at the pleasure of the Board, are as follows:
EXECUTIVE OFFICER NAME AGE POSITION SINCE - --------------------- --- ------------------------------- --------- John W. Amerman 64 Chairman of the Board & 1980 Chief Executive Officer Jill E. Barad 44 President & Chief Operating 1984 Officer and a Director of Mattel, Inc. James A. Eskridge 53 Group President, Mattel, Worldwide 1988 and a Director of Mattel, Inc. Ned Mansour 47 President, Mattel - USA & Secretary 1992 Byron Davis 48 President, Fisher-Price, Inc. 1995 Joseph C. Gandolfo 53 President, Mattel Operations 1990 William J. Quinlan 51 President, ARCOTOYS 1995 Francesca Luzuriaga 41 Executive Vice President & 1994 Chief Financial Officer E. Joseph McKay 55 Senior Vice President, Human 1993 Resources John T. Phippen 51 Senior Vice President & 1995 Chief Information Officer Gary P. Rolfes 44 Senior Vice President 1993 & Controller William Stavro 56 Senior Vice President 1993 & Treasurer
Mr. Amerman has been Chairman of the Board & Chief Executive Officer since February 1987 and a member of the Board of Directors since November 1985. Prior to that he served as President of Mattel International. 11 Ms. Barad has been President & Chief Operating Officer since August 1992 and a member of the Board of Directors since November 1991. From December 1989 until August 1992, she was President, Mattel USA. Prior to that she served in various executive positions in the Marketing, Product Design and Product Development areas. Mr. Eskridge has been a member of the Board of Directors since February 1993 and Group President, Mattel, Worldwide since April 1995. Prior to that he was President of Fisher-Price, Inc. and Executive Vice President & Chief Financial Officer of Mattel, Inc. Mr. Mansour has been President, Mattel-USA & Secretary since February 1996. From April 1995 to February 1996, he was Executive Vice President, Chief Administrative Officer, General Counsel & Secretary. From February 1993 until April 1995, he was Senior Vice President, General Counsel & Secretary. From May 1992 until February 1993, he was Senior Vice President & General Counsel and from April 1991 until May 1992, he was Vice President & Associate General Counsel. Prior to that he was Vice President & Assistant General Counsel. Mr. Davis has been President, Fisher-Price, Inc. since April 1995. From March 1993 to April 1995, he served as President - Toys, Fisher-Price. Prior to that, he served as Senior Vice President - Sales of Fisher-Price from June 1991 to March 1993. Mr. Gandolfo has been President, Mattel Operations, since April 1990. Mr. Quinlan has been President, ARCOTOYS since January 1992. From October 1985 to January 1992, he served as Chief Financial Officer, ARCOTOYS. Ms. Luzuriaga has been Executive Vice President & Chief Financial Officer since December 1995. From March 1989 until December 1995, she served in several senior managerial positions at Mattel, including Controller, Treasurer and Executive Vice President, Finance. Mr. McKay has been Senior Vice President, Human Resources since November 1993. From December 1991 until November 1993, he was Vice President, Human Resources. He was Senior Director Human Resources from March 1991 to December 1991. Prior to that he was Vice President Human Resources- Administration of Mileage Plus, Inc. Mr. Phippen has been Senior Vice President & Chief Information Officer since June 1993. From February 1991 to June 1993, he served as Senior Vice President - Information Systems. Mr. Rolfes has been Senior Vice President & Controller since November 1993. From June 1993 to November 1993, he was Vice President & Controller. Prior to that he held various executive positions within the finance department. Mr. Stavro has been Senior Vice President & Treasurer since May 1995. From November 1993 to May 1995, he was Vice President & Treasurer. From March 1992 to November 1993, he was Vice President & Assistant Treasurer. Prior to that he was Assistant Treasurer for more than five years. 12 ITEM 2. PROPERTIES - ------- ---------- Mattel owns its corporate headquarters consisting of approximately 335,000 square feet in El Segundo, California, which is subject to a $45.0 million mortgage. Mattel also leases buildings in El Segundo consisting of approximately 300,000 square feet, which are primarily used for its design and development and audio visual departments. Fisher-Price owns its headquarters facilities in East Aurora, New York, consisting of approximately 290,000 square feet. The Company maintains sales offices in California, Illinois, New York and Texas, and warehouse and distribution facilities in California, Georgia, Indiana, Kentucky, Tennessee and Texas. The Company owns a computer facility in Phoenix, Arizona. Internationally, the Company has offices and/or warehouse space in Argentina, Australia, Belgium, Canada, Colombia, Chile, Denmark, France, Germany, Greece, Hong Kong and in certain other areas of Asia, Italy, Japan, Mexico, The Netherlands, New Zealand, Spain, Switzerland, the United Kingdom and Venezuela. The Company's principal manufacturing facilities are located in China, Indonesia, Italy, Malaysia, Mexico, the United Kingdom and the United States. See "Manufacturing." Most of the Company's facilities are occupied under long-term leases and, for the most part, are fully utilized, although excess manufacturing capacity exists from time to time based on product mix and demand. With respect to leases which are scheduled to expire during the next twelve months, the Company may negotiate new lease agreements, renew leases or utilize alternative facilities. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Company's Fisher-Price subsidiary has executed a consent order with the State of New York involving a remedial action/feasibility study for voluntary cleanup of contamination at one of its manufacturing plants. The ultimate liability associated with this cleanup presently is estimated to be less than $1,425,000, approximately $794,000 of which has been incurred through December 31, 1995. The Company is involved in various litigation and other legal matters which are being defended and handled in the ordinary course of business. None of these matters is expected to result in outcomes having a material adverse effect on the Company's liquidity, operating results or consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None 13 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED - ------- STOCKHOLDER MATTERS ----------------------------------------------------- For information regarding the markets in which the Company's common stock is traded, see the cover page hereof, and for information regarding the high and low sales prices of the Company's common stock for the last two calendar years, see Note 9 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference. As of March 1, 1996, the Company had approximately 37,000 holders of record of its common stock. In January of 1994, the Company paid dividends of $0.031 per share, and in April, July and October 1994 and January 1995, the Company paid dividends of $0.038 per share. The Company paid per share dividends of $0.048 in April, July and October 1995. The dividends have been adjusted to reflect five-for-four stock splits which the Company declared on its common stock to holders of record on December 17, 1993, January 6, 1995 and February 16, 1996. ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The information under the caption "Five-Year Financial Summary" on page 27 in the Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- RESULTS OF OPERATIONS --------------------------------------------------------------- The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 28 through 31 in the Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- ------------------------------------------- The consolidated financial statements of Mattel, Inc. and Subsidiaries, together with the report of Price Waterhouse LLP dated February 6, 1996, included on pages 32 through 51 in the Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- FINANCIAL DISCLOSURE --------------------------------------------------------------- None 14 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- Information required under this Item relating to members of the Board of Directors is incorporated by reference herein from the Company's 1996 Notice of Annual Meeting of Stockholders and Proxy Statement. The information with respect to executive officers of the Company appears under the heading "Executive Officers of the Registrant" in Part I herein. ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- The information required under this Item is incorporated by reference herein from the Company's 1996 Notice of Annual Meeting of Stockholders and Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- The information required under this Item is incorporated by reference herein from the Company's 1996 Notice of Annual Meeting of Stockholders and Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The information required under this Item is incorporated by reference herein from the Company's 1996 Notice of Annual Meeting of Stockholders and Proxy Statement. 15 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K - -------- ------------------------------------------------------- (a) The following documents are filed as part of this report: Annual Report Page Number(1) ------------- (1) Financial Statements Consolidated Balance Sheets as of 32-33 December 31, 1995 and 1994 Consolidated Statements of Income for 34 the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for 35 the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' 36 Equity for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements 37-50 Report of Price Waterhouse LLP, Independent 51 Accountants to the Company 1 Incorporated by reference from the indicated pages of the Annual Report to Shareholders for the year ended December 31, 1995. With the exception of the information incorporated by reference in Items 1, 5, 6, 7, 8 and 14 of this report, the Annual Report to Shareholders is not deemed filed as part of this report. 16 (2) Financial Statement Schedule for the years ended December 31, 1995, 1994 and 1993 (1) Schedule II - Valuation and Qualifying Accounts and Allowances (3) Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K) 3.0 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.0 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 3.1 By-laws of the Company, as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992) 4.0 Rights Agreement, dated as of February 7, 1992, between the Company and The First National Bank of Boston, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A, dated February 12, 1992) (The Company has not filed certain long-term debt instruments under which the principal amount of securities authorized to be issued does not exceed 10% of the total assets of the Company. Copies of such agreements will be provided to the Securities and Exchange Commission upon request.) 10.0 Credit Agreement dated as of March 10, 1995 among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as Agent (incorporated by reference to Exhibit 99.5 to the Company's Current Report on Form 8-K dated March 21, 1995) 10.1* First Amendment to Credit Agreement dated as of March 11, 1996 among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as Agent 10.2 Second Amended and Restated Transfer and Administration Agreement dated as of March 10, 1995 among the Company, Mattel Sales Corp., Fisher-Price, Inc., the Banks named therein and NationsBank of Texas, N.A., as Agent (incorporated by reference to Exhibit 99.6 to the Company's Current Report on Form 8-K dated March 21, 1995) 10.3 First Amendment to Second Amended and Restated Transfer and Administration Agreement dated as of March 10, 1995 among the Company, Mattel Sales Corp., Fisher-Price, Inc., the Banks named therein and NationsBank of Texas, N.A., as Agent (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) - ------------------- 1 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 17 10.4* Second Amendment to Second Amended and Restated Transfer and Administration Agreement dated as of March 11, 1996 among the Company, Mattel Sales Corp., Fisher-Price, Inc., the Banks named therein and NationsBank of Texas, N.A., as Agent. 10.5 Receivables Purchase Agreement dated as of August 29, 1995 among the Company, Mattel Sales Corp., Fisher-Price, Inc., and Bank of America N.T.S.A. (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 10.6 Stock Purchase Agreement dated as of October 20, 1995 by and between Mattel, Inc. and Marine Midland Bank, as sub-trustee of the International Games, Inc. Employee Stock Ownership Trust (incorporated by reference to Exhibit 10.3 to the Company's quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 10.7 Underwriting Agreement dated May 19, 1993 between the Company, Morgan Stanley & Co. Incorporated and Kidder, Peabody & Co. Incorporated (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.8 Stock Subscription Warrant dated as of June 28, 1991 between Fisher-Price, Inc. and certain investors (incorporated by reference to Exhibit 4(c) to Fisher-Price's Report on Form 10-K for the transition period from July 1, 1991 to December 29, 1991) 10.9 Underwriting Agreement dated July 31, 1992 between the Company, Morgan Stanley & Co. Incorporated and Kidder, Peabody & Co. Incorporated (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992) 10.10 Distribution Agreement dated September 19, 1994 among the Company, Morgan Stanley & Co. Incorporated and CS First Boston Corporation (incorporated by reference to Exhibit 99.0 to the Company's Current Report on Form 8-K dated September 20, 1994) Executive Compensation Plans and Arrangements of the Company - ------------------------------------------------------------ 10.11 Form of Indemnity Agreement between Mattel and its directors and certain of its executive officers (incorporated by reference to Exhibit B to Notice of Annual Meeting of Stockholders of the Company dated March 24, 1987) 10.12 Form of Employment Agreement between the Company and certain executive officers (incorporated by reference to Exhibit 10.6 of Amendment No. 1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1987) 18 10.13 Form of Employment Agreement between the Company and certain executive officers (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992) 10.14 Form of Amended & Restated Employment Agreement between the Company and certain executive officers (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.15* Mattel, Inc. Management Incentive Plan 10.16* Mattel, Inc. Long-Term Incentive Plan 10.17 Mattel, Inc. Financial Security Program Agreement for certain officers (incorporated by reference to Exhibit 10.7 of the Company's Registration Statement No. 2-95161 on Form S-1, filed January 7, 1985) 10.18 Form of Deferred Compensation Plan for Directors (incorporated by reference to Exhibit No. 10.11 of Amendment No. 1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1987) 10.19 Mattel, Inc. 1990 Stock Option Plan (incorporated by reference to Exhibit A to the Notice of Annual Meeting of Stockholders and Proxy Statement of the Company dated March 15, 1990) 10.20 Amendment No. 1 to the Mattel, Inc. 1990 Stock Option Plan (incorporated by reference to the information under the heading "Amendment to Mattel 1990 Stock Option Plan" on page F-1 of the Joint Proxy Statement/Prospectus of the Company and Fisher- Price included in the Company's Registration Statement on Form S-4, Registration Statement No. 33-50749) 10.21 Amendment No. 2 to the Mattel 1990 Stock Option Plan (incorporated by reference to Exhibit A to the Company's Proxy Statement dated March 22, 1995) 10.22 Form of Award Agreement evidencing award of stock appreciation rights granted pursuant to the Company's 1990 Stock Option Plan to certain executive officers of the Company ("Award Agreement") (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991) 10.23 Form of First Amendment to Award Agreement (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.24 Notice of Grant of Stock Options and Grant Agreement (incorporated by reference to Exhibit 99.0 to the Company's Current Report on Form 8-K dated May 31, 1994) 19 10.25 Grant Agreement for a Non-Qualified Stock Option (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated May 31, 1994) 10.26 Award Cancellation Agreement (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated May 31, 1994) 10.27 Form of Restricted Stock Award Agreement under the Mattel 1990 Stock Option Plan (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.28 Mattel, Inc. Supplemental Executive Retirement Plan effective as of October 7, 1990 (incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990) 10.29 Mattel, Inc. Supplemental Executive Retirement Plan effective as of April 1, 1994 (incorporated by reference to Exhibit 99.7 to the Company's Current Report on Form 8-K dated March 21, 1995) 10.30 Description of the Mattel, Inc. Deferred Compensation Plan for Officers (incorporated by reference to Exhibit 10.16 to the Mattel, Inc. Annual Report on Form 10-K for the year ended December 31, 1991) 10.31 Fisher-Price, Inc. Matching Savings Plan, 1994 Restatement (incorporated by reference to Exhibit 99.8 to the Company's Current Report on Form 8-K dated March 21, 1995) 10.32 The Fisher-Price, Inc. Pension Plan (1989 Restatement) (incorporated by reference to Exhibit 10(l) to Fisher-Price's Registration Statement on Form 10 dated June 28, 1991) 10.33 Mattel, Inc. Personal Investment Plan, 1993 Restatement (incorporated by reference to Exhibit 99.9 to the Company's Current Report on Form 8-K dated March 21, 1995) 10.34 First Amendment to the Mattel, Inc. Personal Investment Plan, 1993 Restatement (incorporated by reference to Exhibit 99.10 to the Company's Current Report on Form 8-K dated March 21, 1995) 10.35 Second Amendment to the Mattel, Inc. Personal Investment Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) 10.36 Third Amendment to the Mattel, Inc. Personal Investment Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) 20 10.37 Fourth Amendment to the Mattel, Inc. Personal Investment Plan (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 10.38 Mattel, Inc. Hourly Personal Investment Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8 dated February 20, 1996) 11.0* Computation of Income per Common and Common Equivalent Share 13.0* Pages 26 through 53 of the Mattel, Inc. Annual Report to Shareholders for the year ended December 31, 1995 21.0* Subsidiaries of the Registrant 23.0* Consent of Price Waterhouse LLP 24.0* Power of Attorney (on page 23 of Form 10-K) 27.0* Financial Data Schedule (EDGAR filing only) (b) Reports on Form 8-K Mattel, Inc. filed the following Current Report on Form 8-K during the quarterly period ended December 31, 1995: Financial Date of Report Items Reported Statements Filed ------------------ -------------- ---------------- October 17, 1995 5, 7 None (c) Exhibits Required by Item 601 of Regulation S-K See Item (3) above (d) Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts and Allowances Copies of Form 10-K (which includes Exhibit 24.0), Exhibits 11.0, 13.0, 21.0 and 23.0 and the Annual Report to Shareholders are available to stockholders of the Company without charge. Copies of other Exhibits can be obtained by stockholders of the Company upon payment of twelve cents per page for such Exhibits. Written requests should be sent to Secretary, Mattel, Inc., 333 Continental Boulevard, El Segundo, California 90245-5012. - ------------------- * Filed herewith. 21 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MATTEL, INC. Registrant By: /s/ Gary P. Rolfes ------------------------- GARY P. ROLFES Senior Vice President and Date: As of March 22, 1996 Controller -------------------- 22 POWER OF ATTORNEY ----------------- We, the undersigned directors and officers of Mattel, Inc. do hereby severally constitute and appoint John W. Amerman, Ned Mansour, Leland P. Smith and John L. Vogelstein, and each of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically, but without limitation, power and authority to sign for us or any of us, in our names in the capacities indicated below, any and all amendments hereto; and we do each hereby ratify and confirm all that said attorneys and agents, or any one of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ John W. Amerman Chairman of the Board March 22, 1996 - ------------------- and Chief Executive Officer JOHN W. AMERMAN /s/ Francesca Luzuriaga Executive Vice President March 22, 1996 - ----------------------- and Chief Financial Officer FRANCESCA LUZURIAGA (principal financial officer) /s/ Jill E. Barad Director, President and March 22, 1996 - ----------------- Chief Operating Officer JILL E. BARAD 23 Signature Title Date - --------- ----- ---- /s/ Harold Brown Director March 22, 1996 - ---------------- HAROLD BROWN /s/ James A. Eskridge Director and Group President, March 22, 1996 - --------------------- Mattel, Worldwide JAMES A. ESKRIDGE Director - --------------------- TULLY M. FRIEDMAN /s/ Ronald M. Loeb Director March 22, 1996 - ------------------ RONALD M. LOEB /s/ Edward H. Malone Director March 22, 1996 - -------------------- EDWARD H. MALONE /s/ Edward N. Ney Director March 22, 1996 - ----------------- EDWARD N. NEY /s/ William D. Rollnick Director March 22, 1996 - ----------------------- WILLIAM D. ROLLNICK /s/ Christopher A. Sinclair Director March 22, 1996 - --------------------------- CHRISTOPHER A. SINCLAIR /s/ John L. Vogelstein Director March 22, 1996 - ---------------------- JOHN L. VOGELSTEIN
24 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE --------------------------------- To the Board of Directors of Mattel, Inc. Our audits of the consolidated financial statements referred to in our report dated February 6, 1996 appearing on page 51 of the December 31, 1995 Annual Report to Shareholders of Mattel, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, based on our audits, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP - ------------------------ Los Angeles, California February 6, 1996 25 MATTEL, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES (In thousands)
Balance at Additions Balance Beginning Charged to Net at End of Year Operations Deductions of Year ---------- ---------- ---------- -------- Allowance for Doubtful Accounts - -------------------- Year Ended December 31, 1995 $ 16,100 $ 14,682 $ (19,994)(a) $ 10,788 Year Ended December 31, 1994 21,024 7,282 (12,206)(a) 16,100 Year Ended December 31, 1993 35,115 4,169 (18,260)(a) 21,024 Allowance for Inventory Obsolescence - ------------------------- Year Ended December 31, 1995 $ 28,536 $ 40,368 $ (46,153)(b) $ 22,751 Year Ended December 31, 1994 19,432 37,039 (27,935)(b) 28,536 Year Ended December 31, 1993 16,109 32,084 (28,761)(b) 19,432 (a) Includes write-offs, recoveries of previous write-offs, and currency translation adjustments. (b) Includes write-downs and currency translation adjustments. 26

                                                               EXHIBIT 10.1


                            FIRST AMENDMENT TO
                            ------------------
                             CREDIT AGREEMENT
                             ----------------


          THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment")
is dated as of March 11, 1996 and is entered into by and among MATTEL,
INC., a Delaware corporation (the "Company"), THE FINANCIAL INSTITUTIONS
LISTED ON THE SIGNATURE PAGES HEREOF (the "Banks"), and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for the Banks (the
"Agent") and amends the Credit Agreement dated as of March 10, 1995 among
the Company, certain of the Banks and the Agent (the "Agreement").


                                  RECITAL
                                  -------

          The Company has requested that the Banks and the Agent amend the
Agreement, and the Banks and Agent are willing to amend the Agreement on
the terms and conditions set forth herein.


          NOW, THEREFORE, the parties hereto agree as follows:


          1.   Terms.  All capitalized terms used herein have the same
meanings as in the Agreement unless otherwise defined herein.  All
references to the Agreement shall mean the Agreement as hereby amended.


          2.   Amendments.  The parties hereto agree that the Agreement is
amended as follows:

          2.1  The definitions of "Applicable Amount" and "Termination
Date" in Section 1.1 of the Agreement are amended and restated in their
entirety as follows:

               "'Applicable Amount' means, for each type of Loan and the
          commitment fee, the amount (expressed in basis points per annum)
          set forth in the chart below opposite the Applicable Level then
          in effect:


                                 -1-

(Basis Points Per Annum) - ---------------------------------------------------------- Applicable Commitment Eurodollar CD Rate Loans Level Fee Rate Loans 1 9.00 25.00 37.50 2 10.00 30.00 42.50 3 12.50 37.50 50.00 4 17.50 45.00 57.50 5 35.00 75.00 87.50
"'Termination Date' means March 9, 2001." 2.2 The following new definitions are inserted in Section 1.1 of the Agreement in proper alphabetical order: "'Combined Total Outstanding Investment' means an amount equal to the sum of (a) the Total Outstanding Investment under the Transfer and Administration Agreement plus (b) the analogous amount under Other Permitted Accounts Receivable Financing Facilities." "'Other Permitted Accounts Receivable Financing Facility' means a financing arrangement other than the Transfer and Administration Agreement under which accounts receivable of the Company, Mattel Sales or Fisher-Price are periodically sold, and the Company, Mattel Sales or Fisher-Price collects the accounts receivable so sold on behalf of the transferee." 2.3 Clause (iii) of the proviso to Section 2.1 of the Agreement is amended by deleting "$650,000,000" and inserting "$800,000,000" in lieu thereof. 2.4 Section 2.5(b)(y) of the Agreement is amended by deleting "$250,000,000" and inserting "$400,000,000" in lieu thereof. 2.5 The proviso to Section 2.8(a)(iii) of the Agreement is deleted in its entirety. 2.6 Section 2.9(b) of the Agreement is deleted in its entirety, and subsections (c) and (d) of Section 2.9 are relettered (b) and (c), respectively. 2.7 Section 7.4 of the Agreement is amended by deleting "and" at the end of subsection (a), deleting the period -2- at the end of subsection (b) and inserting "; and" in lieu thereof, and inserting a new subsection (c) as follows: "(c) If the Company believes in good faith that the collectability of certain accounts receivable is or may be jeopardized by the distressed financial condition of the obligor under such accounts receivable, the Company, Mattel Sales and Fisher-Price may sell such accounts receivable, including, without limitation, by means of entering into and performing under Other Permitted Accounts Receivable Financing Facilities." 2.8 Section 7.5 of the Agreement is amended and restated in its entirety as follows: "7.5 Consolidated Funded Indebtedness to Total Capitalization. The Company shall not permit the ratio of the sum of (a) Consolidated Funded Indebtedness plus (b) Combined Total Outstanding Investment to the sum of (x) Consolidated Funded Indebtedness plus (y) Combined Total Outstanding Investment plus (z) Consolidated Tangible Net Worth to exceed 65% at the end of each of the first three fiscal quarters in each fiscal year and 55% at the end of each fiscal year." 2.9 Section I of Attachment I to Exhibit D to the Agreement (Officer's Certificate) is amended and restated in its entirety as set forth on Exhibit A to this First Amendment. 2.10 Section II.B. of Attachment I to Exhibit D to the Agreement (Officer's Certificate) is amended by deleting "Line I.B4" and inserting "Line I.D.4" in lieu thereof. 2.11 Schedule 1.1 to the Agreement (Loan Commitments) is amended and restated in its entirety as set forth on Schedule 2.1 to this First Amendment. 3. Representations and Warranties. The Company represents and warrants to the Banks and the Agent: 3.1 Authorization. The execution, delivery and performance of this First Amendment by the Company has been duly authorized by all necessary corporate action by the Company and has been duly executed and delivered by the Company. 3.2 Binding Obligation. This First Amendment and the Agreement are legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms, except to the extent enforceability thereof may be limited by applicable law relating to bankruptcy, insolvency, reorganization, -3- moratorium or other similar laws relating to or limiting creditors' rights generally or by the application of general principles of equity. 3.3 No Conflict. The execution, delivery and performance by the Company of this First Amendment and the issuance, delivery and payment of the replacement Notes do not and will not (a) violate the Restated Certificate of Incorporation or Bylaws of the Company, (b) violate any provision of law applicable to the Company, or any material order, judgment or decree of any court or other agency of government binding on the Company, the violation of which would result in a Material Adverse Effect, (c) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company, (d) result in or require the creation or imposition of any material lien, security interest, charge or encumbrance of any nature whatsoever upon any of its material properties or assets, or (e) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company. 3.4 Incorporation of Certain Representations. The representations and warranties set forth in Section 5 of the Agreement are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date. 3.5 Default. No Default or Event of Default under the Agreement has occurred and is continuing. 4. Conditions, Effectiveness. The effectiveness of this First Amendment shall be subject to the compliance by the Company with its agreements herein contained, and to the delivery of the following to Agent in form and substance satisfactory to Agent: 4.1 Corporate Resolution. A copy of a resolution or resolutions passed by the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the effective date of this First Amendment, authorizing the amendments to the Agreement herein provided for and the execution, delivery and performance of this First Amendment and any note or other instrument or agreement required hereunder. 4.2 Authorized Signatories. A certificate, signed by the Secretary or an Assistant Secretary of the Company and dated the date of this First Amendment, as to the incumbency of the -4- person or persons authorized to execute and deliver this First Amendment and any instrument or agreement required hereunder on behalf of the Company. 4.3 Replacement Notes. Notes, duly executed and delivered by the Company, evidencing each Bank's new Loan Commitment for each Bank previously having a Note, which Note shall replace the existing Note of each such Bank. 4.4 Accrued Fees and Interest. The Company agrees to pay to the Agent on the date hereof, for distribution to the Banks (including the Selling bank as defined in Section 5.5 of this First Amendment) all accrued and unpaid interest and fees due to the Banks to the date hereof. 4.5 Other Evidence. Such other evidence with respect to the Company or any other person as the Agent or any Bank may reasonably request to establish the consummation of the transactions contemplated hereby, the taking of all corporate action in connection with this First Amendment and the Agreement and the compliance with the conditions set forth herein. 5. Miscellaneous. 5.1 Effectiveness of the Agreement. Except as hereby amended, the Agreement shall remain in full force and effect. 5.2 Waivers. This First Amendment is specific in time and in intent and does not constitute, nor should it be construed as, a waiver of any other right, power or privilege under the Agreement, or under any agreement, contract, indenture, document or instrument mentioned in the Agreement; nor does it preclude any exercise thereof or the exercise of any other right, power or privilege, nor shall any future waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document or instrument mentioned in the Agreement, constitute a waiver of any other default of the same or of any other term or provision. 5.3 Counterparts. This First Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. This First Amendment shall not become effective until the Company, the Banks and the Agent shall have signed a copy hereof, whether the same or counterparts, and the same shall have been delivered to the Agent. 5.4 Jurisdiction. This First Amendment, and any instrument or agreement required hereunder, shall be governed by and construed under the laws of the State of California. -5- 5.5 Assignment of Marine Midland's Loan Commitment to Societe Generale. Effective as of the date of this First Amendment, after all Loans have been prepaid pursuant to Section 5.6 of this First Amendment, but before the reborrowing of such Loans pursuant to Section 5.6 of this First Amendment, Marine Midland Bank (the "Selling Bank") agrees to sell and assign to Societe Generale (the "Buying Bank"), and the Buying Bank hereby agrees to purchase and assume, without recourse, from the Selling Bank, all of the Selling Bank's Loan Commitment and any outstanding Loans. Such assignment shall be automatic, without any further action required by any party pursuant to Section 10.1 of the Agreement. From and after the effectiveness of such assignment, the Buying Bank shall be a "Bank" for all purposes of the Agreement having the Loan Commitment specified next to the Buying Bank's name on Schedule 1.1 to this First Amendment. The Selling Bank and the Buying Bank authorize the Agent to distribute to the Selling Bank its Pro Rate Share of all accrued fees and interest it receives from the Company that are due to the Selling Bank for the period preceding this assignment. The Selling Bank represents and warrants to the Buying Bank that it is the legal and beneficial owner of the Obligations it is assigning hereunder and that such Obligations are free and clear of any adverse claim. Other than as provided above, the Selling Bank makes no representation or warranty nor assumes any responsibility with respect to such Obligations, this Agreement or any other instrument or document furnished pursuant hereto, the financial condition of the Company, or the performance or observance by the Company thereunder. The Company agrees to pay on demand directly to the Selling Bank any costs incurred by it pursuant to Section 3.5 of the Agreement in connection with the assignment of its Loans hereunder. The Company, the Guarantors, the Banks and the Agent hereby consent to such assignment. 5.6 Adjustments to Aggregate Loan Commitment. Effective as of the date of this First Amendment, the Aggregate Loan Commitment and each Bank's respective Loan Commitments shall be as set forth on Schedule 1.1 to this First Amendment. In order to accomplish such adjustment, the Company confirms its request under Section 2.6(a) of the Agreement that all outstanding Loans be prepaid as of the date hereof and, pursuant to a Notice of Borrowing timely delivered pursuant to Section 2.2 of the Agreement, that such Loans be immediately, but after giving effect to the assignment set forth in Section 5.5 above, reborrowed from each Bank in accordance with its Pro Rata Share of the revised Aggregate Loan Commitment. The Company agrees to pay on demand directly to each Bank any costs incurred by such Bank pursuant to Section 3.5 of the Agreement by reason of such prepayment of its outstanding Loans. -6- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. MATTEL, INC. By /s/ William Stavro ------------------ William Stavro Senior Vice President and Treasurer S-1 AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By /s/ Kay Warren -------------- Kay Warren Vice President S-2 BANKS: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ Robert W. Troutman ---------------------- Robert W. Troutman Managing Director S-3 NATIONSBANK OF TEXAS, N.A. By /s/ Tom F. Scharfenberg ----------------------- Title Vice President -------------- S-4 CHEMICAL BANK By /s/ Mary Cameron ---------------- Title: Vice President -------------- S-5 THE FIRST NATIONAL BANK OF BOSTON By /s/ Debra Zurka --------------- Title Vice President -------------- S-6 PNC BANK, N.A. By /s/ Ted A. Dunn --------------- Title Assistant Vice President ------------------------ S-7 THE TORONTO-DOMINION (TEXAS), INC. By /s/ Diane Bailey ---------------- Title Vice President -------------- S-8 ABN AMRO BANK N.V. By /s/ Matthew S. Thomson ---------------------- Title Group Vice President/Director ----------------------------- By /s/ Patrick A. Russo -------------------- Title Assistant Vice President ------------------------ S-9 THE BANK OF CALIFORNIA, N.A. By /s/ Lynn E. Vine ---------------- Title Vice President -------------- S-10 BANQUE NATIONALE DE PARIS By /s/ Clive Bettles ----------------- Title Senior Vice President & Manager ------------------------------- By /s/ Mitchell M. Ozawa --------------------- Title Vice President -------------- S-11 DRESDNER BANK AG, Los Angeles Agency By /s/ Sidney S. Jordan -------------------- Title Vice President -------------- By /s/ Jon M. Bland ---------------- Title Senior Vice President --------------------- S-12 ISTITUTO BANCARIO SAN PAOLO di TORINO SpA By /s/ Donald W. Brown ------------------- Title Branch Manager -------------- By /s/ Glen Binder --------------- Title Vice President -------------- S-13 MANUFACTURERS & TRADERS TRUST CO. By /s/ Geoffery R. Fenn -------------------- Title Vice President -------------- S-14 CITICORP USA, INC. By /s/ Majorie Futornick --------------------- Title Vice President -------------- S-15 SOCIETE GENERALE By /s/ J. Staley Stewart --------------------- Title Vice President -------------- S-16 MARINE MIDLAND BANK (for purposes of Section 5.5 only) By /s/ Mary Ann Tappero -------------------- Title Vice President -------------- S-17 CONSENT OF GUARANTORS --------------------- The undersigned Fisher-Price, Inc., and Mattel Sales Corp. hereby consent to the foregoing First Amendment to Credit Agreement dated as of March 11, 1996, and reaffirms their respective Continuing Guaranty each dated as of March 10, 1995. Dated: March 11, 1996 MATTEL SALES CORP. By: /s/ William Stavro ------------------ William Stavro Vice President and Treasurer FISHER-PRICE, INC. By: /s/ William Stavro ------------------ William Stavro Treasurer EXHIBIT A TO FIRST AMENDMENT ---------------------------- Amendment and Restatement of Section I of Attachment I to Exhibit D to the Agreement (Officer's Certificate) I. CONSOLIDATED FUNDED INDEBTEDNESS TO TOTAL CAPITALIZATION AS OF ABOVE DATE. (Section 7.5) A. Consolidated Funded Indebtedness: 1. Total liabilities for borrowed money: - Notes Payable: $ --------- - Current Portion of Long-Term Debt: $ --------- - Term Loans: $ --------- - Subordinated Debt: $ --------- - Senior Long-Term Debt: $ --------- - Mortgages: $ --------- Total liabilities for borrowed money: $ --------- 2. Capital Leases: $ --------- 3. Guaranties of unconsolidated funded obligations for borrowed money: $ --------- 4. Total Consolidated Funded Indebtedness (Lines A1+A2+A3): $ ========= B. Combined Total Outstanding Investment: 1. Total Outstanding Investment under Transfer and Administration Agreement: $ --------- 2. Amount analogous to "Total Outstanding Investment" under Other Permitted Accounts Receivable Financing Facilities (describe): $ --------- 3. Combined Total Outstanding Investment (Lines B1+B2): $ ========= C. Consolidated Funded Indebtedness plus Combined Total Outstanding Investment (Lines A4+B3): $ ========= D. Consolidated Tangible Net Worth: 1. Net Worth: $ --------- 2. Foreign exchange currency translation adjustments: $ --------- 3. Intangible assets: $ --------- 4. Consolidated Tangible Net Worth (Line D1 - (D2+D3)): $ ========= E. Consolidated Funded Indebtedness plus Combined Total Outstanding Investment plus Consolidated Tangible Net Worth (Lines C+D4): $ ========= F. Actual percentage of Consolidated Adjusted Debt plus Combined Total Outstanding Investment of Consolidated Funded Indebtedness plus Combined Total Outstanding Investment plus Consolidated Tangible Net Worth (Line C,E): % ------- G. Permitted maximum percentage of Consolidated Funded Indebtedness plus Combined Total Outstanding Investment to Consolidated Funded Indebtedness plus Combined Total Outstanding Investment plus Consolidated Tangible Net Worth: (55%) (65%)

                                                               EXHIBIT 10.4


                            SECOND AMENDMENT TO

                        SECOND AMENDED AND RESTATED

                   TRANSFER AND ADMINISTRATION AGREEMENT


          SECOND AMENDMENT TO SECOND AMENDED AND RESTATED TRANSFER AND
ADMINISTRATION AGREEMENT (this "Amendment"), dated as of March 11, 1996, by
and among MATTEL SALES CORP., a California corporation, and FISHER-PRICE,
INC., a Delaware corporation, as transferors (each, a "Transferor"),
MATTEL, INC., a Delaware corporation, as guarantor and servicer (the
"Guarantor" and the "Servicer"), THE BANKS LISTED ON THE SIGNATURE PAGES
HEREOF (collectively, other than Marine Midland Bank, the "Banks") and
NATIONSBANK OF TEXAS, N.A., a national banking association, as agent on
behalf of the Banks (the "Agent") amending that certain Second Amended and
Restated Transfer and Administration Agreement dated as of March 10, 1995,
by and among the Transferors, the Guarantor, the Servicer, the Banks and
the Agent (the "Original Agreement" and said agreement as amended through
and including the date hereof, the "Agreement").


                          PRELIMINARY STATEMENTS

          WHEREAS, the Transferors have requested that the Banks agree to
certain amendments to the Original Agreement and subject to the terms and
conditions hereof the Banks have agreed to such amendments.

          NOW, THEREFORE, the parties hereby agree as follows:

          SECTION 1.  Definitions.  All capitalized terms used herein which
are not otherwise defined are used as defined in the Original Agreement.

          SECTION 2.  Amendments to Original Agreement.  The Original
Agreement is hereby amended as follows:

          (a)  The definition of "Commitment Commission Rate" in Section
1.1 of the Original Agreement shall be amended by deleting the chart
contained in such definition and by replacing it with the following chart:


Toys "R" Us, Inc.'s long-term senior unsecured debt ratings Commitment S&P/Moody's/Duff Commission ---------------------- ---------- AA-/Aa3/AA-or higher 8.0 bps A/A2/A or higher 10.0 bps A-/A3/A- 12.0 bps
The Commitment Commission Rate upon effectiveness of this Amendment will be 8 basis points. (b) The definition of "Commitment Fee" shall be deleted in its entirety and shall be replaced with the following: "Commitment Fee" means a fee equal to the applicable Commitment Commission Rate payable by the Transferors on each Remittance Date on the difference between the average Facility Limit and the average Total Outstanding Investment on each day for the one- year period preceding such date. (c) The definition of "Facility Limit" in Section 1.1 of the Original Agreement shall be amended by deleting the reference to "$250,000,000" and by replacing it with "$400,000,000". (d) The definition of "Participation Rate" in Section 1.1 of the Original Agreement shall be amended by deleting the chart contained in such definition and by replacing it with the following:
Toys "R" Us, Inc.'s long-term senior unsecured debt ratings Spread S&P/Moody's/Duff -------------------- -------- AA-/Aa3/AA-or higher 20.0 bps A/A2/A or higher 22.5 bps A-/A3/A- 30.0 bps
2 The spread upon effectiveness of this Amendment will be 20 basis points. (e) The definition of "Remittance Date" in Section 1.1 of the Original Agreement shall be amended by deleting the reference to "December 18, 1995, December 17, 1996, and December 17, 1997," and by replacing it with "December 17, 1996, December 17, 1997, December 17, 1998, December 17, 1999 and December 17, 2000". (f) The definition of "Termination Date" in Section 1.1 of the Original Agreement shall be amended by deleting the reference to "December 17, 1997" and by replacing it with "December 17, 2000". (g) The definition of "Weekly Report" in Section 1.1 of the Original Agreement shall be renamed the "Servicer's Certificate" in such Section and shall be renamed as such for all purposes of the Original Agreement, and the reference in such definition to "weekly basis" shall be deleted and replaced with the words "monthly basis and prior to a Transfer". (h) Section 2.2 of the Original Agreement shall be amended (i) by deleting both references to "80%" in such Section and by replacing them with "90%" and (ii) in the 25th line of such Section after the word "Notice") and before the period by inserting the words ", and such Transferor shall, at the time of delivery of the Transfer Notice, cause the Servicer to prepare and deliver to the Agent a Servicer's Certificate covering the period from the last day specified in the most recent Servicer's Certificate delivered to the Agent to and including the day prior to the date of delivery of the related Transfer Notice". (i) Section 2.8 of the Original Agreement shall be amended (A) in the third line thereof by deleting the words "each subsequent Monday" and by replacing them with the words "the first Monday of each calendar month" and (B) in the seventh line thereof by deleting the words "for the preceding calendar week" and by replacing them with the words "covering a period from the later to occur of (A) the first day of the preceding calendar month and (B) the date on which the last such Servicer's Certificate was delivered in connection with a 3 Transfer pursuant to Section 2.2, through and including the last day of preceding calendar month". (j) Section 2.6 shall be amended by deleting the references to "125%" therein and by replacing them with "111%". (k) Section 7.3(h) of the Original Agreement shall be amended by deleting the references to "80%" therein and by replacing them with "90%". (l) Exhibit A to the Agreement shall be amended by (i) deleting the reference to "80%" in the fifth line of the second paragraph of such Exhibit and by replacing it with "90%" and (ii) deleting the reference to "20%" in the first line of the third paragraph of such Exhibit and by replacing it with "10%". (m) Exhibit B to the Agreement shall be amended by (i) deleting the reference to "FORM OF WEEKLY SERVICER'S CERTIFICATE" on the first page of such Exhibit and by replacing it with "FORM OF SERVICER'S CERTIFICATE", (ii) deleting the second line of such Exhibit in its entirety and by replacing it with the words "For the Period beginning ______, 199_ and ending _______, 200_", (iii) deleting all references to "calendar week" and "week" in such Exhibit and by replacing them with the word "period" in each instance and (iv) deleting the reference to "125%" in the second line of paragraph 10 of such Exhibit and by replacing it with "111%". (n) Exhibit C to the Agreement shall be amended by (i) deleting all references to "week" in such Exhibit and by replacing them with the word "period" and (ii) deleting the reference to "80%" in the third line of paragraph 13 of such Exhibit and by replacing it with "90%". SECTION 3. Amendment to Bank Commitments; Funding. (a) By its execution of this Amendment, each Bank a party to the Original Agreement hereby agrees that its Bank Commitment shall be amended as evidenced on the signature page hereto related to such Bank. Each Bank, each Transferor, the Guarantor and the Servicer further acknowledges that, as amended hereby, (i) the Bank Com- 4 mitment with respect to Marine Midland Bank has been reduced to zero, and and Marine Midland Bank has been terminated as a party to the Agreement and (ii) Societe Generale has become a Bank party to the Agreement (with the Percentage and Bank Commitment specified on its signature page hereto and all other rights, interests and obligations of a Bank under the Agreement) as evidenced by its execution of this Amendment (without any further action required pursuant to Section 11.9 of the Agreement). (b) In furtherance of the foregoing, the Transferors agree on the date hereof to remit, in immediately available funds, $100,869,352.09 to the Agent in the manner specified in Section 2.7 of the Original Agreement, whereupon the Agent shall immediately distribute such funds to the Banks party to the Original Agreement (and Marine Midland Bank) pro rata based on each such Bank's (and Marine Midland Bank's) respective Percentage. Following such distribution, each Bank a party to this Amendment (and, after giving effect to this Amendment, the Agreement) shall pay to the Agent its Percentage of $100,000,000.00, which amount shall be immediately remitted by the Agent to the Transferors, in each case in accordance with the procedures described in the second paragraph of Section 2.2 of the Original Agreement. SECTION 4. Representations and Warranties. The Transferors hereby make to each of the Banks, on and as of the date hereof, all of the representations and warranties set forth in Section 3.1 of the Original Agreement, except to the extent that any such representation or warranty relates to an earlier date. In addition, Mattel, Inc. hereby makes to each of the Banks, on and as of the date hereof, all the representations and warranties set forth in Section 3.2 of the Original Agreement, except to the extent that any such representation or warranty relates to an earlier date. SECTION 5. Conditions Precedent. This Amendment shall not become effective until the Agent shall have received the following: (a) An opinion of counsel to the Transferors with respect to certain corporate matters and the enforceability against the Transferors of the Original Agreement as amended hereby, in form and substance acceptable to the Agent; 5 (b) An opinion of counsel to Servicer and the Guarantor with respect to certain corporate matters and the enforceability against each of the Servicer and the Guarantor of the Original Agreement as amended hereby, in form and substance acceptable to the Agent; (c) An executed copy of the Written Agreement, in form and substance acceptable to the Agent; (d) Certified copies of resolutions of the Board of Directors of the Transferors authorizing this Amendment and the transactions contemplated hereby; and (e) Executed counterparts of this Amendment. SECTION 6. Amendment and Waiver. No provision hereof may be amended, waived, supplemented, restated, discharged or terminated without the written consent of the parties hereto. SECTION 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of Governmental Rules provisions thereof. This Amendment together with the Original Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. SECTION 8. Severability; Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Amendment. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 6 SECTION 9. Captions. The captions in this Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 10. Ratification. Except as expressly affected by the provisions hereof, the Original Agreement as amended by this Amendment shall remain in full force and effect in accordance with its terms and ratified and confirmed by the parties hereto. On and after the date hereof, each reference in the Original Agreement to "this Agreement", "hereunder", "herein" or words of like import shall mean and be a reference to the Original Agreement as amended by this Amendment. 7 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date and year first above written. MATTEL SALES CORP., as Transferor By: /s/ William Stavro ------------------ Name: William Stavro Title: Vice President and Treasurer FISHER-PRICE, INC., as Transferor By: /s/ William Stavro ------------------ Name: William Stavro Title: Treasurer MATTEL, INC., as Guarantor and Servicer By: /s/ William Stavro ------------------ Name: William Stavro Title: Sr. Vice President and Treasurer NATIONSBANK OF TEXAS, N.A., as Agent By: /s/ Tom F. Scharfenberg ----------------------- Name: Tom F. Scharfenberg Title: Vice President 8 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 10.000000000 40,000,000 NATIONSBANK OF TEXAS, N.A. By: /s/ Tom F. Scharfenberg ----------------------- Name: Tom F. Scharfenberg Title: Vice President Notice Address: 444 S. Flower Street, Suite 4100 Los Angeles, California 90071 Attn: Tom F. Scharfenberg 9 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 12.500000000 50,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Robert W. Troutman ---------------------- Name: Robert W. Troutman Title: Managing Director Notice Address: 555 Flower Street, 11th Floor Los Angeles, California 90071 Attn: Robert W. Troutman 10 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 8.125000000 32,500,000 PNC BANK, NATIONAL ASSOCIATION By: /s/ Ted A. Dunn ----------------- Name: Ted A. Dunn Title: Assistant Vice President Notice Address: 55 South Lake Avenue, Suite 650 Pasadena, California 91101 Attn: Ted A. Dunn 11 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 10.000000000 40,000,000 CHEMICAL BANK By: /s/ Mary E. Cameron ------------------- Name: Mary E. Cameron Title: Vice President Notice Address: Corporate Banking Group 270 Park Avenue, 9th Floor New York, New York 10017 Attn: Mary E. Cameron 12 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 8.125000000 32,500,000 THE FIRST NATIONAL BANK OF BOSTON By: /s/ Debra Zurka --------------- Name: Debra Zurka Title: Vice President Notice Address: 100 Federal Street, MAIL STOP 01-09-05 Boston, Massachusetts 02110 Attn: Debra Zurka 13 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 8.125000000 32,500,000 TORONTO-DOMINION (TEXAS), INC. By: /s/ Diane Bailey ---------------- Name: Diane Bailey Title: Vice President Notice Address: 909 Fannin Houston, Texas 77010 Attn: Lisa Allison 14 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 CITICORP USA, INC. By: /s/ David L. Harris ------------------- Name: David L. Harris Title: Vice President Notice Addresses: c/o Citicorp North America, Inc. 725 South Figueroa Street 5th Floor Los Angeles, California 90017 Attn: Deborah Ironson c/o Citibank, N.A. One Court Square, 7th Floor Long Island City, New York 11120 Attn: Mark Wrigley 15 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 8.125000000 32,500,000 ABN AMRO BANK N.V. By: /s/ Matthew S. Thomson ---------------------- Name: Matthew S. Thomson Title: Group Vice President/Director By: /s/ Patrick A. Russo -------------------- Name: Patrick A. Russon Title: Assistant Vice President Notice Address: Los Angeles International Branch 300 South Grand Avenue, Suite 1115 Los Angeles, California 90071 Attn: Matthew S. Thomson 16 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 DRESDNER BANK AG Los Angeles Agency By: /s/ Sidney S. Jordan -------------------- Name: Sidney S. Jordan Title: Vice President By: /s/ Jon M. Bland ---------------- Name: Jon M. Bland Title: Senior Vice President Notice Address: Los Angeles Agency 725 South Figueroa Street, Suite 3950 Los Angeles, California 90017 Attn: Dennis Blank 17 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 MANUFACTURERS & TRADERS TRUST CO. By: /s/ Geoffrey R. Fenn -------------------- Name: Geoffrey R. Fenn Title: Vice President Notice Address: 1 Fountain Plaza Buffalo, New York 14203 Attn: Geoffrey R. Fenn 18 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 ISTITUTO BANCARIO SAN PAOLO DI TORINO SPA By: /s/ Donald W. Brown -------------------- Name: Donald W. Brown Title: Branch Manager By: /s/ Glen Binder --------------- Name: Glen Binder Title: Vice President Notice Address: 444 South Flower Street Suite 4550 Los Angeles, California 90071 Attn: Glen Binder 19 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 THE BANK OF CALIFORNIA, N.A. By: /s/ Lynn E. Vine ---------------- Name: Lynn E. Vine Title: Vice President Notice Address: 550 South Hope Street Fifth Floor Los Angeles, California 90071 Attn: Thomas Tegart 20 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 BANQUE NATIONALE DE PARIS By: /s/ Jean-Louis Tourne --------------------- Name: Jean-Louis Tourne Title: Vice President & Deputy Manager By: /s/ Mitchell M. Ozawa --------------------- Name: Mitchell M. Ozawa Title: Vice President Notice Address: 725 South Figueroa Street Suite 2090 Los Angeles, California 90017 Attn: Mitchell M. Ozawa 21 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 0.000000000 0.00 MARINE MIDLAND BANK By: /s/ Mary Ann Tappero -------------------- Name: Mary Ann Tappero Title: Vice President Notice Address: 140 Broadway, 4th Floor New York, New York 10005 Attn: William M. Holland 22 Dollar Amount of Percentage of Original Facility Percentage (%) Limit ($) - -------------- ------------- 5.000000000 20,000,000 SOCIETE GENERALE By: /s/ J. Staley Stewart --------------------- Name: J. Staley Stewart Title: Vice President Notice Address: 2029 Century Park East Suite 2900 Los Angeles, California 90067 23

                                                               EXHIBIT 10.15


                MATTEL MANAGEMENT INCENTIVE PLAN
                --------------------------------

                           ARTICLE I
                           ---------

           ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE
           ------------------------------------------

     This  Management Incentive Plan is established  by  Mattel,
Inc. for the purpose of focusing management on growth in earnings
and  asset  management and linking compensation to  the  business
performance of Mattel, Inc.  The Plan is effective as of  January
1, 1993.

                           ARTICLE II
                           ----------

                          DEFINITIONS
                          -----------

     2.1   Code.  "Code" shall mean the Internal Revenue Code  of
1986 and the regulations promulgated thereunder.

     2.2   Committee.   "Committee"  shall  mean  the  Committee
described in Section 5.1 below.

     2.3   Company.  "Company" shall mean Mattel, Inc.  and  its
participating subsidiaries.

     2.4   Covered Employee.

           (a)  "Covered Employee" means any individual who is, on
     the last day of the Company's taxable year:

                    (i)  The Chief Executive Officer; or

                    (ii) Among  the  four  highest  compensated
          individuals (other than the Chief Executive Officer).

           (b)  The  determination as to  which  individuals  are
     Covered Employees is determined in accordance with the rules
     of  the  Securities and Exchange Commission, except that  an
     individual will not be a Covered Employee unless he  or  she
     is  employed  by the Company on the last day of its  taxable
     year.

     2.5   Outside Director.

           (a)  Whether a  director is an "Outside Director," will
     be determined under Code Section 162(m).  An individual will
     constitute an "Outside Director" only if he or she:


                               1


                    (i)   Is  not  a  current  employee  of  the
          Company;

                    (ii) Is not a former employee of the Company
          who  receives  compensation for prior  services  (other
          than benefits under a tax-qualified retirement plan);

                    (iii) Has not been an officer of the Company;
          and

                    (iv) Does not receive any remuneration  from
          the  Company,  either directly or  indirectly,  in  any
          capacity  other than as a director.  Remuneration  will
          be  considered to be paid to a director if amounts  are
          paid to an entity:

                              (A)   In which the director  holds
               more than 50% of the ownership interest;

                              (B)  Which employs the director; or

                              (C)  Of which the director holds at
               least  5%  but not more than 50% of the  ownership
               interests.

                    (b)  Payments will not be taken into account
          for  purposes  of  Clauses (B)  and  (C)  of  Paragraph
          (a)(iv)  above if the total amounts paid by the Company
          during the preceding year did not exceed the lesser  of
          $60,000 or 5% of the recipient's income.

                    (c)   For  purposes  of  this  Section  2.5,
          "Company"  shall  include  the  other  members  of  the
          affiliated group of corporations, within the meaning of
          Code Section 1504.

     2.6   Participant.  "Participant" shall mean an employee  of
the  Company  (or  of  a subsidiary) that has  been  selected  to
participate in the Plan.

     2.7   Plan.  "Plan" shall mean the Mattel, Inc.  Management
Incentive Plan.

                          ARTICLE III
                          -----------

                    ELIGIBILITY AND BENEFITS
                    ------------------------

     3.1   Separate Standards.

           (a)   The  Committee  may elect to establish  separate
     standards   for  purposes  of  determining  eligibility   to
     participate  and  benefits for each year.   These  standards
     shall be set forth in minutes of the Committee.


                               2


           (b)   These standards shall be drafted and implemented
     in a manner consistent with Code Section 162(m).

     3.2   No Discretion.

           (a)   The  Committee has the discretion to modify  the
     Plan  to  take  into  account the effect  of  unforeseen  or
     extraordinary events or accounting changes.

           (b)   Notwithstanding the provisions of Paragraph (a),
     the  Committee shall not have any discretion to increase the
     benefits  payable  to  any  Participant  who  is  a  Covered
     Employee, to the extent precluded by Code Section 162(m).

     3.3   Shareholder  Approval.   Notwithstanding  the  above,
effective for payments that are deductible in years beginning on
or after January 1, 1994, no payments to Covered Employees may be
made under the Plan unless and until:

           (a)   The shareholders of the Company approve the Plan
     in a separate vote, with affirmative votes being cast by the
     majority of the voting shares.

                    (i)   For this purpose, abstentions are  not
          counted unless applicable law provides otherwise.

                    (ii)  Shareholder approval must be  obtained
          every five (5) years.

           (b)   The  Committee  certifies in  writing  that  the
     performance  goals  and  any  other  material   terms   were
     satisfied.  This requirement may be satisfied by means of  a
     certificate in approved minutes of the Committee.

                           ARTICLE IV
                           ----------

                      PAYMENT OF BENEFITS
                      -------------------

     4.1   Designation of Beneficiary.  In the event of the death
of  a  Participant  prior to the date on which the  Participant's
benefit  is  paid,  the benefit (if any) shall  be  paid  to  the
Participant's surviving spouse.  If the Participant does not have
a  surviving spouse, the benefit (if any) will be paid to his  or
her estate.

     4.2   Payees  under  Legal Disability.   If  the  Committee
reasonably believes that any payee is legally incapable of giving
a valid receipt and discharge for any payment due him or her, the
Committee  may have the payment (if any) made to the  person  (or
persons or institution) whom it reasonably believes is caring for
or  supporting such payee.  Any such payment shall be  a  payment
for the benefit of the payee and shall be a complete discharge of
any liability under the Plan to the payee.


                               3


     4.3   Payment of Benefits.  All payments under the Plan shall
be  delivered  in  person or mailed to the last  address  of  the
Participant (or, in the case of the death of the Participant  (if
applicable),  to  that  of  his or her surviving  spouse).   Each
Participant  shall  be responsible for furnishing  the  Committee
with his or her current address.

     4.4   Entitlement to Benefits.   Nothing contained in this
Article IV shall give a Participant greater rights to benefits
than under the provisions of the benefit formulae contained in the
minutes of the Committee.  Specifically, if the formula provides
that a Participant's benefit is forfeited upon termination of
employment (whether by reason of death, disability, or otherwise),
no benefits will become payable by reason of the operation of this
Article IV.

                           ARTICLE V
                           ---------

                      PLAN ADMINISTRATION
                      -------------------

     5.1   Committee.  Authority to administer the Plan shall  be
vested  in  the Compensation/Options Committee of  the  Board  of
Directors  of Mattel, Inc. ("Committee").  Only Outside Directors
may  be members of the Committee, and the Committee must have  at
least two members.

     5.2   Administrative Powers.  The Committee shall have  all
powers  necessary  to administer the Plan.  In  addition  to  any
powers and authority conferred on the Committee elsewhere in  the
Plan or by law, the Committee shall have the following powers and
authority:

           (a)  To designate agents to carry out responsibilities
     relating to the Plan;

           (b)  To administer, interpret, and answer all questions
     which may arise under this Plan.  The determinations by  the
     Committee  will be binding upon all parties, to the  maximum
     extent permitted by law;

           (c)  To establish rules and procedures for the conduct
     of its business and for the administration of the Plan; and

           (d)   To perform or cause to be performed such further
     acts  as  it  may  deem  necessary  or  appropriate  in  the
     administration of the Plan.

     5.3   Indemnification.

           (a)   To  the  maximum extent permitted  by  law,  the
     Company shall indemnify each member of the Committee and  of
     the  Board  of  Directors  of the Company  against  expenses
     (including   any  amount  paid  in  settlement)   reasonably
     incurred by him or her in connection with any claims against
     him or her by reason of the performance of his or her duties
     under  the  Plan.  This  indemnity  shall  not apply  if the
     individual:

                    (i)   Acted fraudulently or in bad faith  in
          the performance of his or her duties; or

                    (ii) Fails to assist the Company in defending
          against the claim.


                               4


           (b)  The Company shall have the right to select counsel
     and to control the prosecution or defense of the suit.

           (c)  The Company shall not be required to indemnify any
     person  for  any amount incurred through settlement  of  any
     action  unless  the  Company  consents  in  writing  to  the
     settlement.

                           ARTICLE VI
                           ----------

                     MISCELLANEOUS MATTERS
                     ---------------------

     6.1   Amendment and Termination.  The Company  expects  the
Plan  to be permanent, but since future conditions affecting  the
Company  cannot be anticipated or foreseen, the Company  reserves
the right to amend, modify, or terminate the Plan at any time  by
action of its Board of Directors.

     6.2   Benefits Not Alienable.  Benefits under the Plan  may
not   be   assigned   or   alienated,  whether   voluntarily   or
involuntarily.

     6.3   No Enlargement of Employee Rights.  Nothing contained
in the Plan shall be deemed to give a participant the right to be
retained  in the employ of the Company or to interfere  with  the
right of the Company to discharge any Participant at any time.

     6.4  Governing Law.  All legal questions pertaining to  the
Plan shall be determined in accordance with the laws of the State
of Delaware.

      IN WITNESS WHEREOF, Mattel, Inc. has caused this instrument
to be executed.


                              MATTEL, INC.



                              By:   /s/ E. Joseph McKay
                                    -------------------

                              Its:  Senior Vice President, Human Resources
                                    --------------------------------------

                              Date: January 1, 1994
                                    ---------------


                               5


                                                               EXHIBIT 10.16


                MATTEL LONG-TERM INCENTIVE PLAN
                -------------------------------

                           ARTICLE I
                           ---------

           ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE
           ------------------------------------------

     This Long-Term Incentive Plan is established by Mattel, Inc.
for  the purpose of providing long-term incentive rewards for key
executives  who  are in a position to increase shareholder  value
and  to  build the net worth of the Company.  To assist  in  this
goal, the Plan helps to focus those executives upon the Company's
financial  objectives  of profitability,  asset  management,  and
revenue  growth.  The effective date of this Plan is  January  1,
1993.

                           ARTICLE II
                           ----------

                          DEFINITIONS
                          -----------

     2.1   Code.  "Code" shall mean the Internal Revenue Code  of
1986 and the regulations promulgated thereunder.

     2.2   Committee.   "Committee"  shall  mean  the  Committee
described in Section 5.1 below.

     2.3   Company.  "Company" shall mean Mattel, Inc. and any of
its subsidiaries whose employees participate in the Plan.

     2.4   Covered Employee.

           (a)  "Covered Employee" means any individual who is, on
     the last day of the Company's taxable year:

                    (i)  The Chief Executive Officer; or

                    (ii)  Among  the  four  highest  compensated
          individuals (other than the Chief Executive Officer).

           (b)   The  determination as to which  individuals  are
     Covered Employees is determined in accordance with the rules
     of  the  Securities and Exchange Commission, except that  an
     individual will not be a Covered Employee unless he  or  she
     is  employed  by the Company on the last day of its  taxable
     year.

     2.5   Outside Director.

           (a)  Whether a director is an "Outside Director," will
     be determined under Code Section 162(m).  An individual will
     constitute an "Outside Director" only if he or she:


                               1


                    (i)   Is  not  a  current  employee  of  the
          Company;

                    (ii) Is not a former employee of the Company
          who  receives  compensation for prior  services  (other
          than benefits under a tax-qualified retirement plan);

                    (iii) Has not been an officer of the Company;
          and

                    (iv) Does not receive any remuneration  from
          the  Company,  either directly or  indirectly,  in  any
          capacity  other than as a director.  Remuneration  will
          be  considered to be paid to a director if amounts  are
          paid to an entity:

                              (A)   In which the director  holds
               more than 50% of the ownership interest;

                              (B)  Which employs the director; or

                              (C)  Of which the director holds at
               least  5%  but not more than 50% of the  ownership
               interests.

                    (b)  Payments will not be taken into account
          for  purposes  of  Clauses (B)  and  (C)  of  Paragraph
          (a)(iv)  above if the total amounts paid by the Company
          during the preceding year did not exceed the lesser  of
          $60,000 or 5% of the recipient's income.

                    (c)   For  purposes  of  this  Section  2.5,
          "Company"  shall  include  the  other  members  of  the
          affiliated group of corporations, within the meaning of
          Code Section 1504.

     2.6   Participant.  "Participant" shall mean an employee  of
the  Company  (or  of  a subsidiary) that has  been  selected  to
participate in the Plan.

     2.7   Plan.  "Plan" shall mean the Mattel,  Inc.  Long-Term
Incentive Plan.

                          ARTICLE III
                          -----------

                     ELIGIBILITY AND BENEFITS
                     ------------------------

     3.1   Separate Standards.

           (a)   The  Committee  may elect to establish  separate
     standards   for  purposes  of  determining  eligibility   to
     participate  and  benefits for each year.   These  standards
     shall be set forth in minutes of the Committee.


                               2


           (b)   These standards shall be drafted and implemented
     in a manner consistent with Code Section 162(m).

     3.2   No Discretion.

           (a)   The  Committee has the discretion to modify  the
     Plan  to  take  into  account the effect  of  unforeseen  or
     extraordinary events or accounting changes.

           (b)   Notwithstanding the provisions of Paragraph (a),
     the  Committee shall not have any discretion to increase the
     benefits  payable  to  any  Participant  who  is  a  Covered
     Employee, to the extent precluded by Code Section 162(m).

     3.3   Shareholder  Approval.   Notwithstanding  the  above,
effective for payments that are deductible in years beginning on
or after January 1, 1994, no payments to Covered Employees may be
made under the Plan unless and until:

           (a)   The shareholders of the Company approve the Plan
     in a separate vote, with affirmative votes being cast by the
     majority of the voting shares; and

                    (i)   For this purpose, abstentions are  not
          counted unless applicable law provides otherwise.

                    (ii)  Shareholder approval must be  obtained
          every five (5) years.

           (b)   The  Committee  certifies in  writing  that  the
     performance  goals  and  any  other  material   terms   were
     satisfied.  This requirement may be satisfied by means of  a
     certificate in approved minutes of the Committee.

                           ARTICLE IV
                           ----------

                      PAYMENT OF BENEFITS
                      -------------------

     4.1   Designation of Beneficiary.  In the event of the death
of  a  Participant  prior to the date on which the  Participant's
benefit  is  paid,  the benefit (if any) shall  be  paid  to  the
Participant's surviving spouse.  If the Participant does not have
a  surviving spouse, the benefit (if any) will be paid to his  or
her estate.

     4.2   Payees  under  Legal Disability.   If  the  Committee
reasonably believes that any payee is legally incapable of giving
a valid receipt and discharge for any payment due him or her, the
Committee may have the payment made to the person (or persons  or
institution)  whom  it  reasonably  believes  is  caring  for  or
supporting  such payee.  Any such payment shall be a payment  for
the benefit of the payee and shall be a complete discharge of any
liability under the Plan to the payee.

     4.3   Payment of Benefits.   All  payments  under  the  Plan
shall be delivered in person or mailed to the last address of the
Participant (or, in the case of the death of the Participant  (if
applicable),  to  that  of  his or her surviving  spouse).   Each
Participant  shall  be responsible for furnishing  the  Committee
with his or her current address.


                               3


                           ARTICLE V
                           ---------

                      PLAN ADMINISTRATION
                      -------------------

     5.1   Committee.  Authority to administer the Plan shall  be
vested  in  the Compensation/Options Committee of  the  Board  of
Directors  of Mattel, Inc. ("Committee").  Only Outside Directors
may  be members of the Committee, and the Committee must have  at
least two members.

     5.2   Administrative Powers.  The Committee shall have  all
powers  necessary  to administer the Plan.  In  addition  to  any
powers and authority conferred on the Committee elsewhere in  the
Plan or by law, the Committee shall have the following powers and
authority:

           (a)  To designate agents to carry out responsibilities
     relating to the Plan;

           (b)  To administer, interpret, and answer all questions
     which may arise under this Plan.  The determinations by  the
     Committee  will be binding upon all parties, to the  maximum
     extent permitted by law;

           (c)  To establish rules and procedures for the conduct
     of its business and for the administration of the Plan; and

           (d)   To perform or cause to be performed such further
     acts  as  it  may  deem  necessary  or  appropriate  in  the
     administration of the Plan.

     5.3   Indemnification.

           (a)   To  the  maximum extent permitted  by  law,  the
     Company shall indemnify each member of the Committee and  of
     the  Board  of  Directors  of the Company  against  expenses
     (including   any  amount  paid  in  settlement)   reasonably
     incurred by him or her in connection with any claims against
     him or her by reason of the performance of his or her duties
     under  the  Plan.   This indemnity shall not  apply  if  the
     individual:

                    (i)   Acted fraudulently or in bad faith  in
          the performance of his or her duties; or

                    (ii) Fails to assist the Company in defending
          against the claim.

           (b)  The Company shall have the right to select counsel
     and to control the prosecution or defense of the suit.


                               4


           (c)  The Company shall not be required to indemnify any
     person  for  any amount incurred through settlement  of  any
     action  unless  the  Company  consents  in  writing  to  the
     settlement.

                           ARTICLE VI
                           ----------

                     MISCELLANEOUS MATTERS
                     ---------------------

     6.1   Amendment and Termination.  The Company  expects  the
Plan  to be permanent, but since future conditions affecting  the
Company  cannot be anticipated or foreseen, the Company  reserves
the right to amend, modify, or terminate the Plan at any time  by
action of its Board of Directors.

     6.2   Benefits Not Alienable.  Benefits under the Plan  may
not   be   assigned   or   alienated,  whether   voluntarily   or
involuntarily.

     6.3   No Enlargement of Employee Rights.  Nothing contained
in the Plan shall be deemed to give a participant the right to be
retained  in the employ of the Company or to interfere  with  the
right of the Company to discharge any Participant at any time.

     6.4   Governing Law.  All legal questions pertaining to  the
Plan shall be determined in accordance with the laws of the State
of Delaware.

     IN WITNESS WHEREOF, Mattel, Inc. has caused this instrument
to be executed.


                              MATTEL, INC.



                              By:   /s/ E. Joseph McKay
                                    -------------------

                              Its:  Senior Vice President, Human Resources
                                    --------------------------------------

                              Date: January 1, 1994
                                    ---------------


                               5



                                          MATTEL, INC. AND SUBSIDIARIES                                 EXHIBIT 11.0
                                                                                                       (Page 1 of 2)
                           COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE
                           ------------------------------------------------------------
                                     (In thousands, except per share amounts)

FOR THE YEAR ENDED (a)(b) ------------------------------------------------------------ Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, PRIMARY 1995 1994 1993 1992 1991 - ------- ------------------------------------------------------------ Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles $357,802 $255,832 $135,911 $184,841 $134,038 Add: Interest savings, net of tax, applicable to assumed exercise of Fisher-Price warrants - - 637 1,138 594 Deduct: Dividends on convertible preference stock (3,342) (4,689) (4,894) (4,826) (4,830) Dividends on senior preferred stock - - - (152) (605) -------- -------- -------- -------- -------- Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles for Computation of Income Per Share 354,460 251,143 131,654 181,001 129,197 Extraordinary item - - (14,681) - (5,236) Cumulative effect of changes in accounting principles - - (4,022) - - -------- -------- -------- -------- -------- Net Income Applicable to Common Shares $354,460 $251,143 $112,951 $181,001 $123,961 ======== ======== ======== ======== ======== Applicable Shares Weighted average common shares outstanding 276,309 275,572 262,856 264,066 224,013 Weighted average common equivalent shares arising from: Stock options 3,271 3,090 2,935 3,622 3,036 Fisher-Price warrants 928 1,023 1,681 3,258 1,752 Restricted stock 507 238 - - - Common stock warrants - $6.25 Series - - - - 636 -------- -------- -------- -------- -------- Weighted average number of common and common equivalent shares 281,015 279,923 267,472 270,946 229,437 ======== ======== ======== ======== ======== Income Per Share Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles $ 1.26 $ 0.90 $ 0.49 $ 0.67 $ 0.56 Extraordinary item - - (0.05) - (0.02) Cumulative effect of changes in accounting principles - - (0.02) - - -------- -------- -------- -------- -------- Net Income Per Common Share $ 1.26 $ 0.90 $ 0.42 $ 0.67 $ 0.54 ======== ======== ======== ======== ======== (a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects of the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of operations and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, while its business was operated as a division of The Quaker Oats Company. (b) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996, January 1995 and 1994, June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and 1992, respectively.
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 2 of 2) COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE ------------------------------------------------------------ (In thousands, except per share amounts)
FOR THE YEAR ENDED (a)(b) ------------------------------------------------------------ Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, FULLY DILUTED 1995 1994 1993 1992 1991 - ------------- ------------------------------------------------------------ Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles $357,802 $255,832 $135,911 $184,841 $134,038 Add: Interest savings, net of tax, applicable to: Assumed conversion of 8% convertible debentures - 628 5,338 5,467 3,907 Assumed exercise of Fisher-Price warrants - - 637 1,138 594 Deduct: Dividends on senior preferred stock - - - (152) (605) Impact of required ESOP dividends or contributions upon conversion - (3,598) (4,894) (4,826) (4,830) -------- -------- -------- -------- -------- Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles for Computation of Income Per Share 357,802 252,862 136,992 186,468 133,104 Extraordinary item - - (14,681) - (5,236) Cumulative effect of changes in accounting principles - - (4,022) - - -------- -------- -------- -------- -------- Net Income Applicable to Common Shares $357,802 $252,862 $118,289 $186,468 $127,868 ======== ======== ======== ======== ======== Applicable Shares Weighted average common shares outstanding 276,309 275,572 263,067 264,223 224,096 Weighted average common equivalent shares arising from: Stock options 4,220 3,110 3,475 4,153 4,512 Assumed conversion of convertible preference stock 739 2,104 2,531 2,531 2,531 Assumed conversion of 8% convertible debentures - 1,619 11,823 12,176 9,322 Fisher-Price warrants 969 1,023 1,681 3,258 1,753 Restricted stock 618 330 - - - Common stock warrants - $6.25 Series - - - - 891 -------- -------- -------- -------- -------- Weighted average number of common and common equivalent shares 282,855 283,758 282,577 286,341 243,105 ======== ======== ======== ======== ======== Income Per Share Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles $ 1.26 $ 0.89 $ 0.48 $ 0.65 $ 0.55 Extraordinary item - - (0.05) - (0.02) Cumulative effect of changes in accounting principles - - (0.01) - - -------- -------- -------- -------- -------- Net Income Per Common Share $ 1.26 $ 0.89 $ 0.42 $ 0.65 $ 0.53 ======== ======== ======== ======== ======== (a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects of the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of operations and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, while its business was operated as a division of The Quaker Oats Company. (b) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996, January 1995 and 1994, June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and 1992, respectively.

                                                                  EXHIBIT 13.0


                           Financial Information
                           ---------------------
                       Mattel, Inc. and Subsidiaries


- -----------------------------------------------------------------------
Five-Year Financial Summary                                          27

Management's Discussion and Analysis of Financial Condition
  and Results of Operations                                          28

Consolidated Financial Statements                                    32

Notes to Consolidated Financial Statements                           37

Management Report on Responsibility for Financial Reporting          51

Report of Independent Accountants                                    51
- -----------------------------------------------------------------------






                                   26



                                        FIVE-YEAR FINANCIAL SUMMARY
                                        ---------------------------
                                       Mattel, Inc. and Subsidiaries
For the Year Ended December 31 (a) ---------------------------------------------------------- (In thousands, except per share and percentage information) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- Operating Results: Net sales $3,638,812 $3,205,025 $2,704,448 $2,563,525 $2,046,489 Gross profit 1,789,162 1,601,503 1,326,267 1,239,308 973,402 % of net sales 49% 50% 49% 48% 48% Operating profit before restructuring and integration charges (b) 606,491 521,081 414,260 351,661 278,660 % of net sales 17% 16% 15% 14% 14% Restructuring and integration charges (c) - 72,000 115,000 - - Income before income taxes, extraordinary item and cumulative effect of changes in accounting principles 532,902 393,632 236,646 282,945 214,326 Provision for income taxes 175,100 137,800 100,735 98,104 80,288 Income before extraordinary item and cumulative effect of changes in accounting principles 357,802 255,832 135,911 184,841 134,038 Extraordinary item - loss on debt retirement - - (14,681) - (5,236) Cumulative effect of changes in accounting principles - - (4,022) - - Net income 357,802 255,832 117,208 184,841 128,802 Income Per Common Share (d): Income before extraordinary item and cumulative effect of changes in accounting principles Primary 1.26 0.90 0.49 0.67 0.56 Fully diluted 1.26 0.89 0.48 0.65 0.55 Net income Primary 1.26 0.90 0.42 0.67 0.54 Fully diluted 1.26 0.89 0.42 0.65 0.53 Dividends declared per common share (d) 0.19 0.15 0.12 0.09 0.05 - ---------------------------------------------------------------------------------------------------------------------- As of Year End (a) ---------------------------------------------------------- (In thousands) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------- Financial Position: Cash and marketable securities $ 483,457 $ 259,681 $ 523,581 $ 327,807 $ 290,750 Accounts receivable, net 679,283 762,024 580,313 538,444 467,266 Inventories 350,841 339,143 219,993 238,895 225,411 Total assets 2,695,509 2,459,026 2,000,077 1,712,675 1,564,832 Notes payable 15,520 - - 13,401 29,733 Long-term liabilities 572,659 457,455 398,939 434,930 353,575 Shareholders' equity 1,275,169 1,085,690 817,809 748,356 664,254 - ---------------------------------------------------------------------------------------------------------------------- (a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects of the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of operations and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, when its business was operated as a division of The Quaker Oats Company (Note 7). (b) Represents income from operations before restructuring charges, interest expense and provision for income taxes. (c) In 1994, amount represents a nonrecurring charge principally related to the consolidation of manufacturing operations and the reduction of headquarters expense and support functions worldwide. In 1993, the nonrecurring charge represents transaction, integration and restructuring costs related to the merger with Fisher-Price (Note 7). (d) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996, January 1995 and 1994, June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and 1992, respectively.
27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ---------------------------------- Mattel, Inc. and Subsidiaries This analysis should be read in conjunction with the consolidated financial statements which begin on page 32. Mattel's financial performance reflects the Company's solid growth in 1995, demonstrating continued strength in its core brands, as well as incremental volume provided through expansion of its international marketing and distribution network and increased manufacturing efficiency. The Company's long-term business strategies have resulted in another record year for sales and earnings, with net sales for 1995 of $3.6 billion and net income for 1995 of $357.8 million. Core brands have historically provided the Company with relatively stable growth. The Company's four principal core brands are BARBIE fashion dolls and doll clothing and accessories; FISHER-PRICE toys and juvenile products, including the POWER WHEELS line of battery-powered, ride-on vehicles; the Company's Disney-licensed toys; and die-cast HOT WHEELS vehicles and playsets, each of which has broad worldwide appeal. Additional core product lines consist of large dolls, including CABBAGE PATCH KIDS; preschool toys, including SEE `N SAY talking toys; the UNO and SKIP-BO card games; and the SCRABBLE game, which the Company markets outside of the United States and Canada. RESULTS OF OPERATIONS - --------------------- The following is a percentage analysis of operating results for the past three years:
For the Year ---------------------------------- 1995 1994 1993 - ---------------------------------- ---------- ---------- ---------- Net sales 100% 100% 100% ========== ========== ========== Gross profit 49 50 49 Advertising and promotion expenses 16 16 16 Other selling and administrative expenses 16 17 18 Restructuring and integration charges - 2 4 Other expense, net - 1 - ---------- ---------- ---------- Operating profit 17 14 11 Interest expense 2 2 2 ---------- ---------- ---------- Income before income taxes, extraordinary item and changes in accounting principles 15% 12% 9% ========== ========== ==========
1995 COMPARED TO 1994 - --------------------- Net sales increased $433.8 million or 14% over 1994, reflecting the continuing strong demand for the Company's core products such as BARBIE doll products; FISHER-PRICE toys and juvenile products, including the POWER WHEELS line; as well as Disney-licensed toys introduced in connection with the release of the "Pocahontas" motion picture. Worldwide sales of core products represented 87% of the Company's gross revenues compared to 84% in 1994. Core brands increased 16%, mainly due to greater demand for BARBIE and BARBIE-related products, which increased from $1.1 billion to $1.4 billion. FISHER-PRICE products contributed $1.2 billion to gross sales in 1995 compared to $1.0 billion in 1994. Sales of Disney-licensed products increased to $451.5 million. Sales to customers within the United States grew 15% and accounted for 60% of consolidated sales for 1995 compared to 59% in the prior year. Sales to customers outside the United States increased 10% compared to 1994, including the $29.8 million favorable effect of the generally weaker US dollar relative to last year. At comparable foreign currency exchange rates, sales internationally grew 9%. Gross profit as a percentage of net sales decreased one percentage point to 49%, due primarily to the impact of increased raw material prices and other product costs, partially offset by reduced duties as a result of changes in the General Agreement on Tariffs and Trade. Advertising and promotion expenses remained constant as a percentage of net sales; however, spending increased $68.0 million in support of increased sales volume, new product introductions, and further development of international markets. Other selling and administrative expenses increased $66.6 million primarily due to higher design and development expenses in support of both core products and new product lines. Other income, net, increased $32.4 million principally due to the impact of the Mexican peso devaluation in the fourth quarter of 1994, and the 1995 gains recognized on the sale of the non-toy business and trademark rights related to Corgi, a Mexican insurance claim, and foreign currency transactions. Interest expense increased $18.1 million or 33% from 1994, which reflects higher average levels of domestic borrowings at higher interest rates. 28 In the 1994 fourth quarter, the Company recognized a $72.0 million pre-tax charge against continuing operations in connection with the consolidation of manufacturing operations and the reduction of headquarters expense and support functions worldwide. At December 31, 1995, the remaining $13.0 million accrual related primarily to committed severance plans and obligations under certain long-term leases. The cost savings realized by the Company as a result of the staff reductions and various distribution and lease terminations were comparable to the anticipated $25 million, and the type and amount of charges incurred to date approximated the amounts included in the provision. 1994 COMPARED TO 1993 - --------------------- Net sales increased $500.6 million or 19% over 1993, reflecting strong growth in worldwide sales of core products, as well as POLLY POCKET toys, Nickelodeon-licensed toys, and MIGHTY MAX action figures. Added volume was also generated by the acquisitions of the Kransco business and J.W. Spear & Sons PLC ("Spear"), which contributed $178.7 million in the aggregate to net sales during 1994. Excluding the Kransco and Spear acquisitions, the Company's worldwide net sales increased $321.9 million or 12%. Worldwide sales of core products represented 84% of total revenues in 1994 compared to 86% for the prior year, largely as a result of strong non- core product sales. Core brand sales increased 16% over the prior year, with gross sales of BARBIE doll products exceeding $1.1 billion in volume. Sales of Disney-licensed products, led by toys connected with "The Lion King" motion picture, increased by 33% to $441.9 million. Fisher-Price, including the POWER WHEELS line, contributed $965.6 million to gross sales in 1994 compared to $747.9 million in 1993, and HOT WHEELS brand sales grew by 18% over 1993 volumes. These increases were partially offset by a continuing decline in sales in the large doll segment, which were 27% below the prior year volume. Sales to customers in the United States were 59% of 1994 consolidated revenues compared to 60% in the prior year. In total, domestic sales increased 17%, partially attributable to incremental volume generated from the acquisition of Kransco, which represented 6% of the Company's domestic sales for 1994. Total international sales increased 20% compared to 1993, including the $24.0 million favorable effect of the generally weaker US dollar relative to last year. At comparable foreign currency exchange rates, sales outside the United States grew 19%. Gross profit as a percentage of net sales increased one percentage point to 50%, primarily due to higher sales volume, improved product mix and synergies realized as a result of the integration of Fisher-Price. Advertising and promotion expenses increased slightly as a percentage of net sales; however, spending increased $89.8 million in support of the growth in sales volume, new product introductions, further development of markets internationally and the acquisitions of Kransco and Spear, which contributed $16.3 million to the advertising growth. As a percentage of net sales, other selling and administrative expenses decreased from 18% to 17%, reflecting the Company's ongoing efforts to manage expense growth relative to revenue growth. In total, selling and administrative expenses increased by $63.0 million mainly due to the acquisitions of Kransco and Spear, which contributed $22.1 million to the increase. Other expense, net, increased $15.6 million, primarily due to the effect of the Mexican peso devaluation in the fourth quarter and higher goodwill amortization arising from the Kransco and Spear acquisitions in 1994, partially offset by higher 1993 charges related to losses on sales of fixed assets. Interest expense decreased $7.2 million over the prior year as a result of the prepayment of Fisher-Price's 10.69% term loan, and interest savings generated by the conversion of the 8% Debentures to common stock during the 1994 first quarter, partially offset by increased seasonal borrowings to finance the acquisitions of Kransco and Spear. In the 1994 fourth quarter, the Company recognized a $72.0 million pre- tax charge against continuing operations in connection with the consolidation of manufacturing operations and the reduction of headquarters expense and support functions worldwide. Of these charges, approximately $36 million was related to severance costs from elimination of approximately 1,000 positions, $15 million represented restricted stock awards that related to the Fisher-Price integration, $14 million for termination of various distribution and lease agreements, $4 million for the writedown of fixed assets to their net realizable value in connection with the elimination of excess manufacturing capacity, and other costs of $3 million. After related tax effects, the net $46.8 million charge impacted 1994 earnings by $0.17 per share. In connection with its merger with Fisher-Price, the Company recognized a one-time charge of $115.0 million, pre-tax, in the 1993 fourth quarter. After related tax effects, the net $90.4 million charge impacted 1993 earnings by $0.34 per share. As of December 31, 1994, the integration and restructuring activity provided for by the 1993 charge was substantially complete and amounts previously accrued had been paid. The cost savings realized by the Company as a result of the consolidation of facilities and related staff reductions were comparable to the anticipated $45 million, and the type and amount of charges actually incurred approximated the amounts included in the provision. The 1993 fourth quarter included an extraordinary net-of-tax charge of $14.7 million or $0.05 per share resulting from prepayment of Fisher- Price's 10.69% term loan. INCOME TAXES - ------------ The effective income tax rates for 1995 and 1994 were 33.0% and 35.0%, respectively. The decrease in the effective rate for 1995 resulted from increased taxable income earned in locations with relatively lower rates. 29 Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which replaced --------------------------- Statement No. 96. Upon adoption, a deferred income tax asset of $69.0 million was recorded, of which $16.0 million related to postquasi- reorganization net operating losses carried forward, and $53.0 million related principally to future tax deductions, and foreign tax credit and alternative minimum tax credit carryovers resulting from activities prior to the 1987 quasi-reorganization. The benefit of $16.0 million (or $0.06 per share in the 1993 first quarter) was recognized in after-tax earnings as the cumulative effect of a change in accounting principle. The remaining $53.0 million was credited to additional paid-in capital in accordance with the required accounting treatment for transactions resulting from activities prior to the quasi-reorganization. FINANCIAL POSITION - ------------------ The Company's financial position remained strong in 1995 primarily due to its profitable operating results. At December 31, 1995, the Company's cash position, including marketable securities, was $483.5 million, compared to $259.7 million as of the prior year. The higher balance was due to the issuance of $139.5 million of Medium-Term Notes during 1995 and cash generated from increased profitability. The Company's working capital increased to $843.1 million. Accounts receivable decreased $82.7 million over the prior year level primarily due to the sale of certain trade receivables, partially offset by higher current year sales volume. Inventory balances increased slightly to $350.8 million. The Company's capitalization is as follows:
As of Year End ---------------------------------------- (In millions) 1995 1994 - ----------------------------- ------------------- ------------------- 6-7/8% Senior Notes $ 99.8 5% $ 99.6 7% 6-3/4% Senior Notes 100.0 6 100.0 7 Medium-Term Notes 220.0 12 110.5 7 Other long-term debt obligations 61.1 3 64.9 4 --------- -------- -------- --------- Total long-term debt 480.9 26 375.0 25 Other long-term liabilities 91.7 5 82.5 5 Shareholders' equity 1,275.2 69 1,085.7 70 --------- -------- -------- --------- $1,847.8 100% $1,543.2 100% ========= ======== ======== =========
Total long-term debt increased $105.9 million mainly due to the issuance of Medium-Term Notes. Future long-term capital needs are expected to be satisfied through the retention of corporate earnings and the issuance of long-term debt instruments. In February of 1996, the Company filed a universal shelf registration statement which, when effective, will allow for the issuance of up to $350.0 million of debt and equity securities. Shareholders' equity increased $189.5 million over 1994, reflecting profitable operating results for the current year and $40.8 million for activity related to employee stock compensation plans. These increases were partially offset by the (i) $73.9 million repurchase of Series F Preference Stock from the International Games, Inc. ("IGI") Employee Stock Ownership Plan ("ESOP"), (ii) treasury stock purchases of $64.3 million and (iii) dividend declarations on common and preference stock totaling $53.6 million. LIQUIDITY - --------- The primary sources of liquidity for the Company over the last three years have been cash on hand at the beginning of the year, cash flows generated from operations, long-term debt issuances and short-term seasonal borrowings. Operating activities generated cash flows of $405.5 million during 1995, compared to $346.6 million and $306.7 million in 1994 and 1993, respectively. Principal investing activities during 1995, 1994, and 1993 included additions of tooling, property and equipment at various manufacturing and office facilities, as well as additional investing in the construction of new manufacturing plants. Investing activities during 1995 and 1994 included expenditures for acquired businesses. In 1995, investing activities also included construction on a new design facility for Fisher- Price. Financing activities provided intermediate- and long-term funds through the issuance of Medium-Term Notes in both 1995 and 1994, and the 6-3/4% Senior Notes in 1993, which were utilized by the Company to retire higher-cost debt and for general corporate purposes. In 1995, all shares of Series F Preference Stock and common stock were repurchased from the IGI ESOP. In 1994, the Company retired Fisher-Price's 10.69% term loan. Cash outlays for treasury stock were made over the three-year period primarily to purchase shares for issuance under the Company's employee stock option plans and for conversions of convertible securities. The Company has consistently increased cash payments for common dividends over the three- year period as a result of stock splits distributed to common shareholders. SHORT-TERM FINANCING - -------------------- The Company's seasonal cash flow requirements for the coming year are expected to be met by cash on hand as of December 31, 1995, cash generated by 1996 operations, and short-term credit lines provided by domestic and foreign banks. Under the Company's domestic credit line, unsecured facilities provide a total of $800.0 million in seasonal financing from a commercial bank group. The facilities provide for up to $400.0 million in advances and backup for commercial paper issuances (a five-year facility), and up to an additional $400.0 million (a five-year facility) for nonrecourse purchases of certain trade accounts receivable by the bank group. In connection with the domestic credit line, the Company is to comply with certain financial covenants for consolidated debt-to-capital, interest coverage and tangible net worth levels. 30 In addition, the Company expects to have available approximately $328 million of individual short-term international credit lines with a number of banks, which customarily are extended as needed to meet seasonal working capital requirements of certain international affiliates. ACQUISITIONS - ------------ On May 31, 1994, the Company acquired substantially all of the business assets and assumed the associated debts and liabilities of Kransco, a San Francisco-based designer, manufacturer and marketer of brand name recreational and sporting products for $274.6 million in cash, including costs directly related to the acquisition and the repayment of $20.0 million of Kransco's short-term borrowings. The asset purchase agreement also provided for future contingent consideration in the event that net sales of the POWER WHEELS product line reached or exceeded certain levels in each of calendar years 1994, 1995 and 1996. Under the agreement, the contingent consideration payable with respect to any year shall not exceed $8.6 million. During 1995, $8.6 million of consideration was paid related to the 1994 sales, and an additional $8.6 million was accrued, which resulted in an increase of $17.2 million to the initial goodwill. In July 1994, the Company acquired a majority of the shares of Spear, a company organized in the United Kingdom, that holds the rights to SCRABBLE in markets outside of the United States and Canada, and certain other games worldwide. The aggregate purchase price, including related acquisition costs, denominated in pounds sterling, was approximately $100 million. On November 30, 1993, the Company completed a merger transaction, accounted for as a pooling of interests, with Fisher-Price, a manufacturer and marketer of infant and preschool toys and juvenile products. The merger, valued on the merger's effective date at $1.19 billion, was effected by the exchange of 2.490 shares (1.275 shares prior to stock splits) of Mattel common stock for each outstanding Fisher-Price common share. Financial information for periods preceding the merger were retroactively restated to reflect the combined operations of the companies. LITIGATION - ---------- The Company is involved in various litigation and other legal matters, including claims related to product liability and environmental cleanup, which are being addressed or defended in the ordinary course of business. Management believes that any liability which may potentially result upon resolution of such matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. COMMITMENTS - ----------- In the normal course of business, the Company enters into contractual arrangements for future purchases of goods and services to ensure availability and timely delivery, and to obtain and protect the Company's right to create and market certain toys. Such arrangements include commitments for future inventory purchases and royalty payments pursuant to licensing agreements. Certain of these commitments routinely contain provisions for guaranteed or minimum expenditures during the terms of the contracts. As of December 31, 1995, the Company had outstanding commitments for 1996 purchases of inventory of approximately $101 million. Licensing and similar agreements with terms extending through the year 2002 contain provisions for future guaranteed minimum payments aggregating approximately $283 million. FOREIGN CURRENCY CONTRACTS - -------------------------- The Company enters into foreign currency forward exchange contracts and swap agreements primarily as hedges of inventory purchases, sales and other intercompany transactions denominated in foreign currencies to limit the effect of exchange rate fluctuations on the Company's results of operations and cash flows. As of December 31, 1995 and 1994, the Company and its international affiliates had outstanding forward exchange contracts totaling $689.2 million and $322.7 million, respectively, and swap agreements totaling $195.4 million and $189.9 million, respectively. Market risk exposures exist with respect to foreign currency forward exchange contracts to the extent that currency fluctuations cannot be predicted with certainty. The Company seeks to mitigate its exposure to market risk through determining its future foreign currency positions and hedge requirements, retaining flexibility with respect to currencies used for international borrowing arrangements and intercompany invoicing, and varying the degree of coverage of individual foreign currency exposures, which may alternatively be left open, partially or fully hedged. By policy, the Company maintains hedge coverages between minimum and maximum percentages of its anticipated foreign currency exposures for any given year. In order to minimize the risk of counterparty non-performance, the Company executes its foreign currency forward exchange contracts and swap agreements with financial institutions believed to be credit-worthy, generally those that provide the Company with its working capital lines of credit. The Company does not trade in financial instruments nor does it enter into contracts for speculative purposes. EFFECTS OF INFLATION - -------------------- Inflation rates in the United States and in major foreign countries in which the Company operates have not had a significant impact on the Company's operating results for the three years ended December 31, 1995. The US Consumer Price Index increased 2.5% in 1995, and 2.7% in both 1994 and 1993. 31 CONSOLIDATED BALANCE SHEETS --------------------------- Mattel, Inc. and Subsidiaries
December 31, December 31, (In thousands) 1995 1994 - ----------------------------------------------------------------------------- ASSETS Current Assets Cash $ 466,082 $ 239,100 Marketable securities 17,375 20,581 Accounts receivable, less allowances of $10,788 at December 31, 1995 and $16,100 at December 31, 1994 679,283 762,024 Inventories 350,841 339,143 Prepaid expenses and other current assets 177,238 182,675 ---------- ---------- Total current assets 1,690,819 1,543,523 ---------- ---------- Property, Plant and Equipment Land 25,724 22,577 Buildings 192,323 172,310 Machinery and equipment 354,469 289,796 Capitalized leases 24,271 38,468 Leasehold improvements 51,629 46,512 ---------- ---------- 648,416 569,663 Less: accumulated depreciation 265,885 248,666 ---------- ---------- 382,531 320,997 Tools, dies and molds, net 116,783 94,924 ---------- ---------- Property, plant and equipment, net 499,314 415,921 ---------- ---------- Other Noncurrent Assets Intangible assets, net 422,796 432,232 Sundry assets 82,580 67,350 ---------- ---------- $2,695,509 $2,459,026 ========== ========== The accompanying notes are an integral part of these statements. 32 December 31, December 31, (In thousands, except share data) 1995 1994 - ----------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 15,520 $ - Current portion of long-term liabilities 33,215 3,095 Accounts payable 250,401 295,246 Accrued liabilities 410,362 453,146 Income taxes payable 138,183 164,394 ---------- ---------- Total current liabilities 847,681 915,881 ---------- ---------- Long-Term Liabilities 6-7/8% Senior Notes 99,752 99,604 6-3/4% Senior Notes 100,000 100,000 Medium-Term Notes 220,000 110,500 Mortgage note 44,585 45,000 Other 108,322 102,351 ---------- ---------- Total long-term liabilities 572,659 457,455 ---------- ---------- Shareholders' Equity Preference stock - 9 Common stock $1.00 par value, 300.0 million shares authorized; 279.1 million shares issued with 275.5 million shares outstanding for 1995 and 279.1 million shares issued with 276.1 million shares outstanding for 1994 (a) 279,058 223,264 Additional paid-in capital 103,512 234,913 Treasury stock at cost; 3.6 million shares for 1995 and 3.0 million shares for 1994 (a) (75,574) (53,812) Retained earnings (b) 1,041,735 737,528 Currency translation and other adjustments (b) (73,562) (56,212) ---------- ---------- Total shareholders' equity 1,275,169 1,085,690 ---------- ---------- $2,695,509 $2,459,026 ========== ========== Commitments and Contingencies (See accompanying notes.) (a) Share data for 1995 and 1994 have been restated for the effects of the five-for-four stock split declared in February 1996. (b) Since December 26, 1987 (Note 1).
33 CONSOLIDATED STATEMENTS OF INCOME --------------------------------- Mattel, Inc. and Subsidiaries
For the Year ---------------------------------- (In thousands, except per share amounts) 1995 1994 1993 - --------------------------------------------------------------------------------- Net Sales $3,638,812 $3,205,025 $2,704,448 Cost of sales 1,849,650 1,603,522 1,378,181 ---------- ---------- ---------- Gross Profit 1,789,162 1,601,503 1,326,267 Advertising and promotion expenses 584,497 516,485 426,698 Other selling and administrative expenses 603,061 536,443 473,394 Restructuring and integration charges - 72,000 115,000 Interest expense 73,589 55,449 62,614 Other (income) expense, net (4,887) 27,494 11,915 ---------- ---------- ---------- Income Before Income Taxes, Extraordinary Item and Cumulative Effect of Changes in Accounting Principles 532,902 393,632 236,646 Provision for income taxes 175,100 137,800 100,735 ---------- ---------- ---------- Income Before Extraordinary Item and Cumulative Effect of Changes in Accounting Principles 357,802 255,832 135,911 Extraordinary item - loss on early retirement of debt - - (14,681) ---------- ---------- ---------- Income Before Cumulative Effect of Changes in Accounting Principles 357,802 255,832 121,230 Cumulative effect of changes in accounting principles - - (4,022) ---------- ---------- ---------- Net Income 357,802 255,832 117,208 Preference stock dividend requirements 3,342 4,689 4,894 ---------- ---------- ---------- Net Income Applicable to Common Shares $ 354,460 $ 251,143 $ 112,314 ========== ========== ========== Income Per Common and Common Equivalent Share Income before extraordinary item and cumulative effect of changes in accounting principles $ 1.26 $ 0.90 $ 0.49 Extraordinary item - loss on early retirement of debt - - (0.05) Cumulative effect of changes in accounting principles - - (0.02) ---------- ---------- ---------- Net income $ 1.26 $ 0.90 $ 0.42 ========== ========== ========== Average number of common and common equivalent shares 281,015 279,923 267,472 ========== ========== ========== Dividends Declared Per Common Share $ 0.19 $ 0.15 $ 0.12 ========== ========== ========== The accompanying notes are an integral part of these statements.
34 CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- Mattel, Inc. and Subsidiaries
For the Year --------------------------------- (In thousands) 1995 1994 1993 - -------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $ 357,802 $ 255,832 $117,208 Adjustments to reconcile net income to net cash flows from operating activities: Gain on sale of business (9,142) - - Depreciation and amortization 132,984 124,272 91,970 Provision for deferred compensation 7,919 14,918 5,957 Loss on early retirement of debt, net of tax - - 14,681 Cumulative effect of changes in accounting principles, net of tax - - 4,022 Provision for lease termination, net - - (41,120) Decrease (increase) in accounts receivable 70,509 (155,265) (55,525) (Increase) decrease in inventories (15,279) (74,148) 11,842 Decrease (increase) in prepaid expenses and other current assets 3,400 (38,626) 7,319 (Decrease) increase in accounts payable, accrued liabilities and income taxes payable (142,948) 215,403 161,818 Other, net 247 4,166 (11,474) --------- --------- -------- Net cash flows from operating activities 405,492 346,552 306,698 --------- --------- -------- Cash Flows From Investing Activities: Purchases of tools, dies and molds (89,730) (75,285) (60,809) Purchases of other property, plant and equipment (117,155) (88,097) (40,060) Purchases of marketable securities (29,154) (29,032) (28,616) Proceeds from sales of other property, plant and equipment 10,903 12,221 12,459 Proceeds from sales of marketable securities 32,237 25,637 25,581 Proceeds from sale of business 21,129 - - Investments in acquired businesses (8,625) (374,965) - Other, net 318 (89) (713) --------- --------- -------- Net cash flows used for investing activities (180,077) (529,610) (92,158) --------- --------- -------- Cash Flows From Financing Activities: Notes payable, net 18,637 (5,966) (14,135) Issuance of Medium-Term Notes 139,500 110,500 - Long-term foreign borrowing (2,572) (4,337) (31,262) Redemption of Fisher-Price term loan - (120,629) - Issuance of 6-3/4% Senior Notes - - 100,000 Tax benefit of employee stock options exercised 8,500 23,923 4,431 Exercise of stock options and warrants 24,353 39,209 8,012 Purchase of treasury stock (64,284) (80,885) (52,558) Repurchase of Series F Preference Stock (73,866) - - Dividends paid on common and preference stock (50,963) (47,840) (30,476) Payment for tendered Fisher-Price warrants - (4,891) - Other, net 578 4,863 (381) --------- --------- -------- Net cash flows used for financing activities (117) (86,053) (16,369) Effect of Exchange Rate Changes on Cash 1,684 2,098 (5,751) --------- --------- -------- Increase (Decrease) in Cash 226,982 (267,013) 192,420 Cash at Beginning of Year 239,100 506,113 313,693 --------- --------- -------- Cash at End of Year $ 466,082 $ 239,100 $506,113 ========= ========= ======== The accompanying notes are an integral part of these statements.
35 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ----------------------------------------------- Mattel, Inc. and Subsidiaries
Additional Preference Common Paid-In Treasury (In thousands) Stock Stock Capital Stock - ------------------------------------------------------------------------------------------------ Balance, December 31, 1992 $9 $137,360 $247,727 $(43,098) Net income Five-for-four stock split 34,343 (34,781) Purchase of treasury stock (52,558) Conversion of 8% debentures (9,540) 33,876 Restricted stock activity 688 13,308 Amortization of deferred compensation Exercise of stock options 79 6,494 Issuance of treasury stock (8,560) 14,430 Dividends declared on common stock Dividends declared on preference stock Cumulative effect of change in accounting principle 53,000 Termination of pre-quasi lease commitment (41,120) Collection of ESOP note receivable Currency translation and other adjustments --------- -------- -------- --------- Balance, December 31, 1993 9 172,470 226,528 (47,350) Net income Five-for-four stock split 44,653 (44,653) Purchase of treasury stock (80,885) Conversion of 8% debentures 5,897 67,549 Restricted stock activity 1,915 Exercise of stock options 244 26,496 Issuance of treasury stock (38,031) 74,423 Payment for tendered Fisher-Price warrants (4,891) Dividends declared on common stock Dividends declared on preference stock Collection of ESOP note receivable Currency translation and other adjustments --------- -------- -------- --------- Balance, December 31, 1994 9 223,264 234,913 (53,812) Net income Five-for-four stock split 55,794 (55,794) Purchase of treasury stock (64,284) Repurchase of Series F Preference Stock (9) (73,857) Restricted stock activity 7,919 Exercise of stock options 8,500 Issuance of treasury stock (18,169) 42,522 Dividends declared on common stock Dividends declared on preference stock Currency translation and other adjustments --------- -------- -------- --------- Balance, December 31, 1995 $- $279,058 $103,512 $(75,574) ========= ======== ======== ========= The accompanying notes are an integral part of these statements. Currency ESOP Translation Total Retained Note Deferred and Other Shareholders' (In thousands) Earnings Receivable Compensation Adjustments Equity - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 $ 448,600 $(8,420) $ (5,650) $(28,172) $ 748,356 Net income 117,208 117,208 Five-for-four stock split (438) Purchase of treasury stock (52,558) Conversion of 8% debentures 24,336 Restricted stock activity (13,310) 686 Amortization of deferred compensation 5,957 5,957 Exercise of stock options 6,573 Issuance of treasury stock 5,870 Dividends declared on common stock (28,911) (28,911) Dividends declared on preference stock (4,894) (4,894) Cumulative effect of change in accounting principle 53,000 Termination of pre-quasi lease commitment (41,120) Collection of ESOP note receivable 4,920 4,920 Currency translation and other adjustments (21,176) (21,176) ---------- -------- -------- -------- ---------- Balance, December 31, 1993 532,003 (3,500) (13,003) (49,348) 817,809 Net income 255,832 255,832 Five-for-four stock split - Purchase of treasury stock (80,885) Conversion of 8% debentures 73,446 Restricted stock activity 13,003 14,918 Exercise of stock options 26,740 Issuance of treasury stock 36,392 Payment for tendered Fisher-Price warrants (4,891) Dividends declared on common stock (45,618) (45,618) Dividends declared on preference stock (4,689) (4,689) Collection of ESOP note receivable 3,500 3,500 Currency translation and other adjustments (6,864) (6,864) ---------- -------- -------- -------- ---------- Balance, December 31, 1994 737,528 - - (56,212) 1,085,690 Net income 357,802 357,802 Five-for-four stock split - Purchase of treasury stock (64,284) Repurchase of Series F Preference Stock (73,866) Restricted stock activity 7,919 Exercise of stock options 8,500 Issuance of treasury stock 24,353 Dividends declared on common stock (50,253) (50,253) Dividends declared on preference stock (3,342) (3,342) Currency translation and other adjustments (17,350) (17,350) ---------- -------- -------- -------- ---------- Balance, December 31, 1995 $1,041,735 $ - $ - $(73,562) $1,275,169 ========== ======== ======== ======== ========== The accompanying notes are an integral part of these statements.
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Mattel, Inc. and Subsidiaries NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Principles of Consolidation and Basis of Preparation - ---------------------------------------------------- The consolidated financial statements include the accounts of Mattel, Inc. and its subsidiaries (the "Company"). All significant intercompany accounts and transactions are eliminated, and certain amounts in the financial statements for prior years have been reclassified to conform with the current year presentation. Financial data for 1993 reflects the retroactive effects of the merger, accounted for as a pooling of interests, with Fisher-Price, Inc. ("Fisher-Price") consummated in November 1993. Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation - ---------------------------- Assets and liabilities of foreign subsidiaries are translated at end-of- period rates of exchange. Income, expense and cash flows are translated at weighted-average rates of exchange for the period. The resulting currency translation adjustments are accumulated and reported as a component of shareholders' equity. Quasi-Reorganization - -------------------- Effective December 26, 1987, the Company implemented a quasi-reorganization and revalued its assets and liabilities to their fair values as of that date. The $69.0 million net effect of these adjustments was credited to additional paid-in capital. Additionally, as of December 26, 1987, accumulated deficits of $256.0 million and cumulative currency translation adjustments of $32.7 million were transferred to additional paid-in capital. Cash - ---- Cash includes cash equivalents, which are highly liquid investments with maturities of three months or less when purchased. Because of the short maturities of these instruments, the carrying amount is a reasonable estimate of fair value. Marketable Securities - --------------------- Marketable securities, comprised principally of US dollar-denominated foreign debt securities held for liquidity purposes, are stated at market value and classified as securities available-for-sale. Unrealized gains or losses are reported as a component of shareholders' equity until realized. Quoted market prices, which approximated cost as of the balance sheet dates, are reasonable estimates of the portfolio's fair value. of the portfolio's fair value. Inventories - ----------- Inventories, net of an allowance for excess quantities and obsolescence, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Property, Plant and Equipment - ----------------------------- Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over estimated useful lives of 15 to 40 years for buildings, 3 to 10 years for machinery and equipment, and 10 to 20 years, not to exceed the lease term, for leasehold improvements. Tools, dies and molds are amortized using the straight-line method over three years. Capitalized lease assets in existence at the time of the quasi- reorganization are recorded at their fair values determined as of December 26, 1987, less accumulated amortization computed over the remaining lease terms. Major categories of capitalized leases are as follows (in thousands):
As of Year End ---------------------- 1995 1994 ---------- ---------- Land and buildings $23,271 $37,208 Machinery and equipment 1,000 1,260 ---------- ---------- 24,271 38,468 Less: accumulated amortization 14,078 18,607 ---------- ---------- $10,193 $19,861 ========== ==========
Intangible Assets, Net - ---------------------- Intangible assets consist of the excess of purchase price over the fair value of net assets acquired in purchase acquisitions, and the costs of acquired patents and trademarks. Intangible assets are amortized using the straight-line method over periods ranging from 10 to 20 years. The Company periodically reviews the carrying value of its intangible assets to identify and assess any impairment by evaluating the operating performance and future undiscounted cash flows of the underlying assets. Accumulated amortization was $99.6 million and $74.0 million as of December 31, 1995 and December 31, 1994, respectively. 37 Advertising Costs - ----------------- Production costs of advertising are expensed at the time the advertising initially takes place. Income Taxes - ------------ Deferred income tax assets and liabilities are determined in accordance with Statement of Financial Accounting Standards No. 109, Accounting for -------------- Income Taxes ("SFAS No. 109"), and result from revenues and expenses being - ------------ recognized in different time periods for financial reporting purposes than for income tax purposes. Under SFAS No. 109, deferred income taxes arise from temporary differences and carryforwards which are tax-effected at the enacted tax rates and subsequently adjusted for changes in tax laws and rates. Deferred income tax assets and liabilities are classified as current or noncurrent based upon the financial reporting classification of assets and liabilities to which they relate. A valuation allowance is established if it is more likely than not that some portion or all of a deferred income tax asset will not be realized. Effective January 1, 1993, the Company adopted SFAS No. 109, the effects of which are covered in detail in Note 2 to the consolidated financial statements. Income and Dividends Per Common Share - ------------------------------------- All share and per share data presented in these financial statements reflect the retroactive effect of the Fisher-Price merger and the five-for- four stock splits distributed in March 1996, and January 1995 and 1994. Income per common share is computed by dividing earnings available to common shareholders by the average number of common and common equivalent shares outstanding during each period. Weighted-average share computations assume the exercise of dilutive stock options and warrants, reduced by the number of shares which could be repurchased at average market prices with proceeds from exercise. Earnings available to common shareholders represent reported net income less preference stock dividend requirements, plus interest savings from the assumed retirement of debt upon exercise of dilutive warrants. Foreign Currency Contracts - -------------------------- The Company enters into foreign currency forward exchange contracts and swap agreements as hedges to limit the effect of exchange rate fluctuations on the Company's results of operations and cash flows. Gains and losses related to hedged transactions are deferred and are recognized in results of operations as part of the underlying transaction while those related to unhedged transactions are included in the income statement currently. NOTE 2 - INCOME TAXES - --------------------- Consolidated pre-tax income before extraordinary item and cumulative effect of changes in accounting principles consists of the following (in thousands):
For the Year ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- US operations $313,703 $268,817 $127,937 Foreign operations 219,199 124,815 108,709 ---------- ---------- ---------- $532,902 $393,632 $236,646 ========== ========== ==========
The provision for current and deferred income tax expense consists of the following (in thousands):
For the Year ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- Current Federal $ 84,800 $ 76,100 $ 64,358 State 14,900 12,100 11,758 Foreign 53,600 48,200 47,884 --------- --------- --------- 153,300 136,400 124,000 --------- --------- --------- Deferred Federal 21,600 1,500 (21,841) State 300 2,250 (3,629) Foreign (100) (2,350) (6,640) --------- --------- --------- 21,800 1,400 (32,110) --------- --------- --------- Provision excluding extraordinary item 175,100 137,800 91,890 Benefit allocated to extraordinary item - - 8,845 --------- --------- --------- Total provision for income taxes $175,100 $137,800 $100,735 ========= ========= =========
Deferred income taxes are provided principally for certain reserves, depreciation, employee compensation-related expenses and certain other expenses that are recognized in different years for financial statement and income tax purposes. The Company's deferred income tax assets (liabilities) were comprised of the following (in thousands):
As of Year End --------------------------- 1995 1994 ------------ ------------ Deferred compensation $ 20,732 $ 11,588 Sales allowances and inventory reserves 58,060 55,826 Operating loss and tax credit carryovers 22,239 26,448 Excess of tax basis over book basis 14,098 9,483 Postretirement benefits 12,840 12,554 Restructuring and integration charges 6,193 36,085 Other 26,062 29,668 ------------ ------------ Gross deferred income tax assets 160,224 181,652 ------------ ------------ Excess of book basis over tax basis (14,636) (14,230) Depreciation (5,245) (816) Retirement benefits (8,905) (7,298) Other (6,327) (11,001) ------------ ------------ Gross deferred income tax liabilities (35,113) (33,345) Deferred income tax asset valuation allowances (28,754) (33,044) ------------ ------------ Net deferred income tax assets $ 96,357 $115,263 ============ ============
38 Differences between the provision for income tax expense at the United States federal statutory income tax rate and the provision in the consolidated statements of income were as follows (in thousands):
For the Year ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- Provision at federal statutory rates $ 186,516 $ 137,771 $ 82,812 Increase (decrease) resulting from: Losses without income tax benefit 4,252 1,160 2,436 Foreign earnings taxed at different rates, including withholding taxes (27,464) (12,029) (1,827) Tax benefit of future deductions - - (994) State and local taxes, net of federal benefit 10,603 9,327 5,417 Dividends paid to ESOP (1,170) (1,600) (1,500) Nondeductible restructuring costs - - 13,599 Other 2,363 3,171 792 ---------- ---------- ---------- Total provision $ 175,100 $ 137,800 $100,735 ========== ========== ==========
Appropriate US and foreign income taxes have been provided for earnings of foreign subsidiary companies that are expected to be remitted in the near future. The cumulative amount of undistributed earnings of foreign subsidiaries which the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $468.5 million at December 31, 1995. The additional US income tax on the unremitted foreign earnings, if repatriated, would be offset in whole or in part by foreign tax credits. Foreign withholding taxes of $19.5 million would be due upon remittance of these earnings. Certain foreign subsidiaries have net operating loss carryforwards totaling $55.4 million ($1.7 million with no expiration date, $45.1 million expiring 1996 to 2000, and $8.6 million expiring after 2000). Generally accepted accounting principles require that tax benefits related to the exercise by employees of nonqualified stock options be credited to additional paid-in capital. In 1995, 1994 and 1993, nonqualified stock options exercised resulted in credits to additional paid-in capital totaling $8.5 million, $23.9 million and $4.4 million, respectively. The Internal Revenue Service has completed its examination of the Company's federal income tax returns through December 31, 1991. Effective January 1, 1993, the Company adopted SFAS No. 109. Upon adoption, a net deferred income tax asset of $69.0 million was recorded, of which $16.0 million related to postquasi-reorganization net operating losses carried forward, and $53.0 million related principally to future tax deductions, and foreign tax credit and alternative minimum tax credit carryovers resulting from activities prior to the 1987 quasi- reorganization. The benefit of $16.0 million (or $0.06 per share in the 1993 first quarter) was recognized in after-tax earnings as the cumulative effect of a change in accounting principle; the remaining $53.0 million was credited to additional paid-in capital in accordance with the required accounting treatment for transactions resulting from activities prior to the 1987 quasi-reorganization. NOTE 3 - EMPLOYEE BENEFITS - -------------------------- The Company and certain of its subsidiaries have various pension and retirement plans covering substantially all employees of these companies. Expense related to these plans totaled $16.1 million, $14.6 million and $10.0 million in 1995, 1994 and 1993, respectively. Prior to the November 1993 merger, Fisher-Price maintained a number of benefit plans and compensation arrangements. Subject to certain exceptions, these programs shall continue to be administered by Fisher-Price without material change or modification for periods up to five years following the merger. Pension Plans - ------------- The Company provides defined benefit pension plans covering certain of its domestic and foreign employees. Plan benefits are based upon covered employees' length of service and earnings. Pension costs are actuarially determined and plans are generally funded to meet benefit obligations existing as of the end of each year. Contributions are based upon amounts required to be funded under applicable governmental regulations, but will not exceed the maximum amount deductible for income tax purposes. Assets of these plans are invested in equity securities, as well as corporate, government and other fixed-income investments. With the exception of the Fisher-Price Pension Plan, activity related to the Company's pension plans, including those of foreign affiliates, was not significant during any year. The Fisher-Price Pension Plan, a defined benefit plan covering most of the domestic employees of Fisher-Price, contains certain change-of-control provisions which were triggered as a result of the November 1993 merger. For a five-year period, or until the assets of the plan are less than its liabilities, if earlier, the rate at which benefits accrue on behalf of participants may not be decreased. In the event of the plan's termination or consolidation 39 with another plan, assets in excess of liabilities must be used to increase participants' benefits. The components of net pension cost for this plan, based upon an October valuation date for the years ended December 31, 1995, 1994 and 1993, are detailed below (in thousands):
For the Period Ended ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- Service cost $ 2,547 $ 3,562 $ 2,928 Interest cost 7,924 7,646 6,801 Actual (gain) loss on plan assets (30,650) 1,038 (9,267) Net amortization and deferral 16,881 (14,221) (2,261) ---------- ---------- ---------- Net pension income $ (3,298) $ (1,975) $(1,799) ========== ========== ==========
Reconciliation of the funded status of Fisher-Price's domestic pension plan to the related prepaid asset included in the consolidated balance sheets are as follows (in thousands):
As of Year End ---------------------- 1995 1994 ---------- --------- Vested benefits $115,573 $ 85,510 Nonvested benefits 3,126 3,643 ---------- ---------- Accumulated benefit obligation 118,699 89,153 Effect of projected future salary increases 4,862 3,923 ---------- ---------- Projected benefit obligation 123,561 93,076 Plan assets at fair value 144,718 117,866 --------- --------- Plan assets in excess of projected benefit obligation 21,157 24,790 Unrecognized net loss (gain) 3,769 (1,424) Unrecognized prior service cost 2,055 2,886 Unrecognized net asset at transition (8,992) (11,561) --------- --------- Prepaid pension asset $ 17,989 $ 14,691 ========== ========== For the Period ---------------------- 1995 1994 1993 ------ ------ ------ Assumptions: Weighted average discount rate 7.25% 8.50% 7.00% Rate of future compensation increases 4.00% 4.00% 4.00% Long-term rate of return on plan assets 10.00% 10.00% 10.00% - ----------------------------------------------------------------
Other Retirement Plans - ---------------------- Domestic employees not covered by collective bargaining agreements are eligible to participate in the Company's 401(k) savings plans, which are defined contribution plans satisfying the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Under these plans, the Company makes contributions to a trust based upon the employee's age, as well as matches percentages of certain amounts of voluntary employee contributions. Mattel's Personal Investment Plan covers employees of Mattel, Inc., and the Fisher-Price, Inc. Matching Savings Plan covers employees of Fisher-Price. On June 30, 1994, the Fisher-Price Profit Sharing and Retirement Savings Plan was merged and all its assets were transferred into the Fisher-Price, Inc. Matching Savings Plan. The Company maintains unfunded supplemental retirement plans which are nonqualified defined benefit plans covering certain key executives of Mattel, Inc. and its subsidiaries. In addition, compensation deferral and excess benefit plans exist for certain officers and key employees of both Mattel, Inc. and Fisher-Price, Inc. For 1995, 1994 and 1993, the accumulated and vested benefit obligations and related expense of these plans were not significant. Employee Stock Ownership Plan - ----------------------------- In January 1987, an ESOP was established for employees of IGI. The ESOP is a defined contribution plan satisfying the requirements of ERISA. In connection with the February 1992 merger, IGI convertible preferred stock held by the ESOP was exchanged for 55.8 thousand shares of the Company's common stock and 864.3 thousand shares of the Company's 12.5% Convertible Preference Stock, Series F. The ESOP debt was repaid in August 1994 through a series of dividend and cash contributions paid by the Company to service the debt. On October 20, 1995, the Company repurchased all shares of Series F and common stock from the ESOP for a total of $75.1 million. The Company intends to terminate the ESOP and has received a determination letter from the IRS permitting termination. Postretirement Benefits - ----------------------- The Company maintains a postretirement benefit plan for domestic employees of Mattel. The plan provides for health care to retirees meeting certain age and years of service requirements, and consists primarily of medical and prescription benefits, Medicare Part B reimbursement and life insurance. The ongoing costs and obligations associated with the Mattel, Inc. plan are not significant to the Company's financial position and results of operations. Fisher-Price has a postretirement health insurance plan covering substantially all domestic employees hired prior to January 1, 1993. Existing retirees, employees who elected to retire before January 1, 1994 and employees whose age-plus-service was equal to 70 years by December 31, 1993 may continue to participate, for their lifetime, in the Fisher-Price group health insurance plan at the same contribution rate as active employees. All other active employees who do not satisfy the criteria outlined above participate in a retiree medical account balance plan. An account was established, as of January 1, 1993, for each eligible employee, with a balance equal to $865 for each year of service, including past service, 40 up to a maximum of 25 years. The account balance will become available upon a participant's retirement at age 55 or anytime thereafter with five years of service, and may be used to purchase benefits through the Fisher- Price health care insurance plan or through an outside insurance provider, and to pay for health care expenses not reimbursed by insurance or Medicare. If an employee terminates employment prior to satisfying the retirement criteria, the account balance is forfeited and no benefits are paid. Details of the plan's expense recognized in the consolidated financial statements for the years ended December 31, 1995, 1994 and 1993 are as follows (in thousands):
For the Year ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- Service cost $ 432 $ 511 $ 475 Interest cost 2,539 1,826 1,999 Recognition of transition obligation - - 29,357 ---------- ---------- ---------- Net postretirement benefit cost $2,971 $2,337 $31,831 ========== ========== ========== The funded status of the plan and the amounts included in the Company's consolidated balance sheets are as follows (in thousands):
As of Year End ---------------------- 1995 1994 ---------- ---------- Current retirees $28,418 $19,011 Fully eligible active employees 2,502 5,078 Other active employees 4,305 6,659 ---------- ---------- Accumulated postretirement benefit 35,225 30,748 obligation Unrecognized net loss (3,687) (21) ---------- ---------- Accrued postretirement benefit liability $31,538 $30,727 ========== ==========
The discount rates used in determining the accumulated postretirement benefit obligation were 7.25%, 8.50% and 7.00% for 1995, 1994 and 1993, respectively. For participants below 65 years of age, the health care cost trend rate for expected claim costs was assumed to be 7.0% in 1995, declining to 5.5% by 1997 and remaining constant thereafter. For participants 65 years of age or older, the health care cost trend rate for expected claim costs was assumed to be 6.0% in 1995, declining to 5.5% by 1996 and remaining constant thereafter. A one percentage point increase in the assumed health care cost trend rate for each future year would have increased the aggregate of service and interest cost for 1995 by approximately $0.3 million and increased the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $4 million. In the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for ------------------------- Postretirement Benefits Other Than Pensions ("SFAS No. 106"), with - ------------------------------------------- immediate recognition of an actuarially-determined accumulated postretirement benefit obligation of $2.3 million for the Mattel, Inc. plan. The related charge of $1.4 million, after deferred income tax benefits of $0.9 million, was recognized in earnings as the cumulative effect of a change in accounting principle. Upon consummation of the November 1993 merger, Fisher-Price's accounting methodology was conformed to that of the Company, and accordingly, a related $18.6 million charge, net of deferred income tax benefits of $10.7 million, was recognized in earnings as the cumulative effect of a change in accounting principle retroactively as of the 1993 first quarter. Incentive Awards - ---------------- The Company's Long-Term Incentive Plan is a variable compensation plan available to certain key executives of Mattel, Inc. Awards are paid annually based upon the performance of the Company over a three-year period. Pursuant to the Company's 1990 stock option plan, stock appreciation rights ("SAR") had been awarded in 1991 to certain key executives of Mattel, Inc. In February 1994, the value of the SARs was capped, and they were canceled in exchange for awards consisting of nonqualified stock options and cash, contingent upon the executive's continued employment by the Company. During 1995, the first of two installment payments related to the SARs of $9.5 million was paid. At December 31, 1995 and 1994, $28.7 million and $26.0 million, respectively, were accrued for awards under these plans. The Company also has discretionary annual incentive compensation plans for officers and key employees of both Mattel, Inc. and Fisher-Price, Inc. based on the Company's performance and subject to certain approvals of the Compensation/Options Committee of the Board of Directors. At December 31, 1995 and 1994, $17.8 million and $30.4 million, respectively, were accrued for awards under these plans. NOTE 4 - SEASONAL FINANCING AND LONG-TERM DEBT - ---------------------------------------------- Seasonal Financing - ------------------ The Company maintains and periodically amends or replaces a revolving credit agreement with a commercial bank group that is utilized to finance the working capital requirements of its domestic and certain international operations. The agreement in effect during 1995, which was recently amended (see below), was renegotiated in the first quarter of 1995 to increase the total facility to $650.0 million from $500.0 million. Within the facility, up to $400.0 million was a standard revolving credit line available for advances and backup for commercial paper issuances (a three- year facility). Interest was charged at various rates selected by the Company not greater than the base rate charged by the agent bank, plus a commitment fee of up to .095% of the unused line available for advances. The remaining $250.0 million (a three-year facility) was available for nonrecourse purchases of certain trade accounts receivable of the Company by the commercial bank group providing the credit line. Outstanding receivables sold are reduced by collections and cannot exceed the $250.0 million at any time. The uncollected balance of receivables sold totaled $67.5 41 million and zero at December 31, 1995 and 1994, respectively. The agreement required the Company to comply with certain financial covenants for consolidated debt-to-capital, interest coverage and tangible net worth levels. Effective in August 1995, the Company entered into an agreement providing for up to $100.0 million, at each specified purchase date, of nonrecourse purchases of certain trade accounts receivable of the Company by a commercial bank. The uncollected balance of receivables sold totaled $79.5 million at December 31, 1995. To meet seasonal borrowing requirements of international operations in addition to amounts funded by proceeds of its revolving credit agreement, the Company negotiates individual financing arrangements, generally with the same groups of banks that provided credit in the prior year. International credit lines total approximately $328 million, a portion of which is used to support letters of credit. The Company expects to extend these credit lines throughout 1996 and believes available amounts will be adequate to meet its seasonal financing requirements. Interest rates charged on the Company's working capital credit lines are adjusted on a periodic basis; therefore, the carrying amounts of such obligations are a reasonable approximation of their fair value. Information relating to the Company's domestic and international credit lines is summarized as follows (in thousands):
For the Year ---------------------------- 1995 1994 1993 -------- -------- -------- Balance at end of year Domestic $ - $ - $ - International 15,520 - - Maximum amount outstanding Domestic 397,000 613,000 167,000 International 84,000 74,000 76,100 Average borrowing Domestic 221,000 271,000 45,100 International 45,000 36,000 55,100 Weighted average interest rate on average borrowing Domestic (computed daily) 6.0% 5.0% 3.5% International (computed monthly) 9.5% 11.5% 8.5% - ---------------------------------------------------------------------
Effective in March 1996, the Company amended its revolving credit agreement. The new agreement consists of unsecured facilities providing a total of $800.0 million in seasonal financing from substantially the same group of commercial banks. The facilities provide for up to $400.0 million in advances and backup for commercial paper issuances (a five-year facility), and up to an additional $400.0 million (a five-year facility) for nonrecourse purchases of certain trade accounts receivable by the bank group. In connection with the agreement, the Company is to comply with certain financial covenants for consolidated debt-to-capital, interest coverage and tangible net worth levels. 6-7/8% Senior Notes - ------------------- In August 1992, the Company issued $100.0 million aggregate principal amount of 6-7/8% Senior Notes maturing August 1, 1997. Interest is payable semiannually on the first day of February and August. At December 31, 1995 and 1994, the bid prices for the 6-7/8% Senior Notes, as provided by one of the underwriters, were $1,020.40 and $965.10, respectively, based on a par value of $1,000.00. 6-3/4% Senior Notes - ------------------- In May 1993, the Company issued $100.0 million aggregate principal amount of 6-3/4% Senior Notes maturing May 15, 2000. Interest is payable semiannually on the fifteenth day of each May and November. At December 31, 1995 and 1994, the bid prices for the 6-3/4% Senior Notes, as provided by one of the underwriters, were $1,033.40 and $924.39, respectively, based on a par value of $1,000.00. Medium-Term Notes ("MT Notes") - ------------------------------ During the 1994 third quarter, the Company commenced a program for the issuance of up to $250.0 million in aggregate principal amount of Series A Medium-Term Notes. During the 1994 fourth quarter, the Company issued an aggregate of $80.5 million principal amount of MT Notes maturing on various dates from October 1999 to December 2004. Interest is payable semiannually at fixed rates ranging from 8.00% to 8.55% per annum on the fifteenth day of May and November. At December 31, 1995 and 1994, the bid prices for these notes ranged from $1,075.00 to $1,159.30 and $983.12 to $997.33, respectively, based on a par value of $1,000.00. The Company also issued an aggregate of $30.0 million principal amount of MT Notes maturing in January 1996, bearing interest at three-month LIBOR plus .125%, currently set at 5.8% per annum. Interest is payable quarterly on the twenty-ninth day of March, June, September and December. The principal amount of floating rate MT Notes approximates fair value since the interest rate is reset quarterly. During 1995, an aggregate of $139.5 million principal amount of MT Notes was issued by the Company maturing on various dates from June 1998 to May 2007. Interest is payable semiannually at fixed rates ranging from 5.93% to 7.65% per annum on the fifteenth day of May and November. At December 1995, the bid prices for these notes ranged from $1,006.50 to $1,081.60, based on a par value of $1,000.00. 42 Mortgage Note - ------------- In 1990, the Company borrowed $45.0 million under a mortgage agreement secured by its headquarters office facility in El Segundo, California. The agreement requires monthly interest-only payments for the first 60 months of its term and monthly principal and interest payments of approximately $0.4 million thereafter, until its December 2005 maturity date. Interest is payable at 10.15% for the term of the agreement. The fair value of the mortgage note, estimated by discounting future cash flows at the interest rates currently available for debt with the same credit rating, similar terms and maturity date, was approximately $51 million and $48 million at December 31, 1995 and 1994, respectively. Fisher-Price Term Loan - ---------------------- Following the merger with Fisher-Price, the Company reached an agreement with the lenders permitting prepayment of its $100.0 million of term indebtedness to insurance companies. The prepayment premium and write-off of unamortized issuance costs resulted in an extraordinary charge against earnings in the 1993 fourth quarter, net of an $8.8 million income tax benefit, of $14.7 million, or $0.05 per share. 8% Convertible Subordinated Debentures ("8% Debentures") - -------------------------------------------------------- During the 1994 first quarter, the Company issued its Notice of Redemption to holders of the 8% Debentures. In lieu of redemption, the holders elected to convert the 8% Debentures into the Company's common stock. During the 1994 first quarter and the 1993 fourth quarter, holders tendered $75.7 million and $24.3 million, respectively, of the 8% Debentures for conversion into 9.2 million and 3.0 million common shares, respectively. Scheduled Maturities - -------------------- The aggregate amounts of long-term debt and capitalized lease obligations maturing in the next five years are as follows (in thousands):
Medium- Capitalized Senior Term Mortgage Lease Debt Notes Note Obligations Other Total --------- ---------- -------- ----------- --------- --------- 1996 $ - $30,000 $500 $100 $2,400 $ 33,000 1997 100,000 - 500 100 1,000 101,600 1998 - 9,500 500 100 300 10,400 1999 - 30,000 600 100 300 31,000 2000 100,000 - 600 - 400 101,000 - --------------------------------------------------------------------------
NOTE 5 - SHAREHOLDERS' EQUITY - ----------------------------- Preference Share Purchase Rights - -------------------------------- In 1992, the Board of Directors approved an extension of the Company's Preference Share Purchase Rights plan. The rights may be exercised by their holders to purchase shares of the Company's Series E Junior Participating Preference Stock upon the occurrence of certain events, including the acquisition, or announcement of intended acquisition, of 20 percent or more of Mattel's common stock by a person or group of affiliated or associated persons. The rights are subject to adjustment in the event of stock dividends, stock splits or other changes in the Company's common stock, and will expire on February 17, 2002, unless the plan is further extended or the rights are earlier redeemed or exchanged by the Company. Preferred and Preference Stock - ------------------------------ The Company is authorized to issue 3.0 million shares of $1.00 par value preferred stock and 20.0 million shares of $0.01 par value preference stock. No preferred shares are outstanding and the Company has no current plan to issue any such shares. In February 1992, 1.5 million shares of $0.01 par value preference shares were designated as Series E Junior Participating Preference Stock in connection with a distribution of Preference Share Purchase Rights to the Company's common shareholders. Series E shares are issuable only when rights become exercisable under the Preference Share Purchase Rights plan (see above). In connection with the IGI merger in February 1992, 864.3 thousand shares of $0.01 par value preference stock were designated as 12.5% Convertible Preference Stock, Series F, and issued to the IGI ESOP. On October 20, 1995, the Company repurchased all outstanding preference stock from the IGI ESOP for $73.9 million. The ESOP note receivable, which was secured by the Series F Preference Stock, was repaid in August 1994. Stock Options - ------------- Under the Company's stock option plans, officers and other key employees may be granted nonqualified stock options, restricted stock awards and stock appreciation rights. Generally, options are exercisable contingent upon the grantees' continued employment with the Company, and in installments when permitted by the Board of Directors or its Compensation/Options Committee. As of December 31, 1995 and 1994, a total of 15.4 million shares and 13.3 million shares, respectively, of Mattel common stock were reserved for issuance under these plans. Nonqualified stock options are granted at not less than 100 percent of the fair market value of the Company's common stock on the date of award, and generally expire within ten years from date of grant. Restricted stock awards issued are subject to various restrictions. During the time period from the award date until the restrictions lapse, shares cannot be sold, assigned, pledged or otherwise encumbered by the recipients. As of December 31, 1995, restricted stock awards granted to Mattel executives totaled 927.7 thousand shares. The market value of these shares as of December 31, 1994 was charged to income as part of the 1994 restructuring. Any subsequent increases or decreases in market value through January 1, 1997, the end of the restriction period, are reflected in the results of operations currently. As a result, $7.9 million was charged to income in 1995. 43 The following is a summary of stock option information for the Company's plans during the year (options in thousands):
Options Outstanding Nonqualified Plans Number (a) Price (a) - -------------------------------- ------------ ---------------- Outstanding at December 31, 1993 15,616 $ 1.77 to $15.30 Granted 3,803 14.56 to 17.84 Exercised (6,126) 1.77 to 12.54 Canceled (145) 2.42 to 14.02 ------------ Outstanding at December 31, 1994 13,148 1.84 to 17.84 Granted 4,152 16.16 to 23.90 Exercised (2,314) 1.84 to 18.10 Canceled (473) 3.34 to 17.90 ------------ Outstanding at December 31, 1995 14,513 $ 1.84 to $23.90 ============ Options exercisable at: December 31, 1994 (b) 3,200 December 31, 1995 (c) 5,541 - ----------------------------------------------- (a) Number of options and prices reflect the retroactive effect of the November 1993 Fisher-Price merger and the five-for-four stock splits distributed in March 1996, and January 1995 and 1994. (b) Average exercise price - $11.89 per share. Expiration dates vary from November 11, 1995 to August 25, 2004. (c) Average exercise price - $13.41 per share. Expiration dates vary from February 18, 1996 to September 18, 2005.
The Company's 1990 stock option plan provides that up to 1% of Mattel's outstanding common stock as determined on December 31 of the preceding year will be available for awards during each calendar year in which the plan is in effect. During 1995, shareholders approved an amendment to the plan that increased the amount of common stock available for award during 1994 by 1.7 million shares above the 1% limitation. Effective with the Fisher-Price merger, all stock-based awards and benefits previously granted under the Fisher-Price Long-Term Incentive Plan of 1991 became fully vested and, if not previously exercised, converted into rights to receive equivalent shares of Mattel common stock. Accordingly, 300.5 thousand Fisher-Price restricted stock awards outstanding became fully vested; the remaining unamortized deferred compensation of $3.0 million was recognized in the fourth quarter of 1993. Fisher-Price Stock Subscription Warrants - ---------------------------------------- In connection with their term loan, Fisher-Price had issued to the lenders detachable warrants allowing them to purchase shares of Fisher-Price stock, subject to certain antidilution requirements. As of the effective date of the merger, the Company agreed to assume Fisher-Price's obligations pursuant to the provisions of the warrants. Change-of-control provisions of the warrants allowed the holders a six-month period from the merger date to elect to receive cash in lieu of exercises for common shares. During June 1994, holders of 451.0 thousand warrants elected the cash option and received $4.9 million. The exercise of all outstanding warrants by the holders would result in delivery of 1.2 million shares of the Company's common stock at an exercise price of approximately $4.77 per share. Conversion of 8% Debentures - --------------------------- During the 1994 first quarter, holders tendered $75.7 million of the 8% Debentures for conversion into 9.2 million common shares in response to the Company's Notice of Redemption. Holders had previously tendered $24.3 million par value of the 8% Debentures for conversion into 3.0 million common shares during the 1993 fourth quarter. Common Stock Repurchase Plan - ---------------------------- In May 1993, the Board of Directors expanded the stock repurchase program, initiated in May 1990, to permit the repurchase on the open market of up to 19.5 million shares over the next four years to fund the stock option plans. During 1995 and 1994, the Company purchased 2.9 million and 4.7 million shares, respectively. As discussed above, the Company repurchased, during the fourth quarter of 1995, the equivalent of 3.3 million shares of common stock in connection with its cash payment to the IGI ESOP for all outstanding shares of Series F preference stock, bringing the total shares repurchased under the program to 15.0 million. On February 6, 1996, the Board of Directors revised the repurchase program to permit the repurchase of 8.8 million shares annually. Shares repurchased, less 2.3 million shares reissued in 1995 and 5.7 million shares reissued in 1994, are included in treasury stock. Dividends and Capital Transactions - ---------------------------------- On February 6, 1996, the Board of Directors declared a five-for-four stock split on the Company's common stock, distributable on March 1, 1996 to shareholders of record as of February 16, 1996. Accordingly, $55.8 million was transferred from additional paid-in capital to common stock, representing the par value of additional shares issued. Similar transfers were made between additional paid-in capital and common stock in the amounts of $44.7 million and $34.3 million, reflecting the respective declarations of five-for-four stock splits in December 1994 and November 1993. A regular quarterly cash dividend has been declared by the Board of Directors on the Company's common stock since the second quarter of 1990. 44 NOTE 6 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- Leases - ------ The Company routinely enters into noncancelable lease agreements for premises and equipment used in the normal course of business. The following table shows the future minimum obligations under lease commitments in effect at December 31, 1995 (in thousands):
Capitalized Operating Leases Leases ----------- --------- 1996 $ 400 $ 35,200 1997 400 27,000 1998 400 22,700 1999 400 17,200 2000 400 14,900 Thereafter 10,600 20,200 ----------- --------- 12,600 (a) 137,200 Less: sublease commitments - 600 ----------- --------- $12,600 $136,600 =========== ========= (a) Includes $10.0 million of imputed interest.
Rental expense under operating leases amounted to $42.8 million, $33.7 million and $33.8 million for 1995, 1994 and 1993, respectively, net of sublease income of $0.7 million, $0.7 million and $0.4 million. In connection with the discontinuance of certain operations in 1984, the Company remained obligated for a facility lease through 1998. The Company determined in April 1993 that it would not, upon the expiration of the sublease agreements, utilize such facility and made a lease termination payment to discharge its remaining obligations to the lessor. A net charge in the amount of $41.1 million, after related tax effects of $26.9 million, for the cost of the lease termination was charged to additional paid-in capital, consistent with the treatment accorded transactions which preceded the Company's 1987 quasi-reorganization. Commitments - ----------- In the normal course of business, the Company enters into contractual arrangements for future purchases of goods and services to ensure availability and timely delivery and to obtain and protect the Company's right to create and market certain toys. Such arrangements include commitments for future inventory purchases and royalty payments pursuant to licensing agreements. Certain of these commitments routinely contain provisions for guaranteed or minimum expenditures during the terms of the contracts. Current and future commitments for guaranteed payments reflect the Company's focus on expanding its product lines through alliances with businesses in other industries, such as sporting goods, and television and motion picture entertainment companies. The single largest commitment involves the Company's 1991 agreements with The Walt Disney Company. An extended licensing agreement permits the Company to use the Disney name and characters on preschool and infant products through 2001 and provides for the addition of certain other Disney characters and product lines to those previously licensed to the Company. In addition, a related ten-year agreement involves the Company's participation in attractions and toy stores at three Disney theme parks and the development of theme park toys. As of December 31, 1995, the Company had outstanding commitments for 1996 purchases of inventory of approximately $101 million. As of December 31, 1994, the Company had commitments for 1995 purchases of inventory of approximately $103 million. Licensing and related agreements provide for terms extending from 1996 through 2002 and contain provisions for future minimum payments as shown in the following table (in thousands):
Minimum Payments --------- 1996 $ 51,000 1997 53,000 1998 51,000 1999 48,000 2000 39,000 Thereafter 41,000 --------- $283,000 =========
Royalty expense for the years ended December 31, 1995, 1994 and 1993 was $104.4 million, $83.9 million and $69.2 million, respectively. The Company has no significant exposure to credit risk in the event of nonperformance by any counterparty or group of counterparties to its outstanding commitments and foreign currency contracts. Market risk exposures exist with respect to foreign currency forward exchange contracts to the extent that currency fluctuations cannot be predicted with certainty. The Company seeks to mitigate its exposure to market risk through determining its future foreign currency positions and hedge requirements, retaining flexibility with respect to currencies used for international borrowing arrangements and intercompany invoicing, and varying the degree of coverage of individual foreign currency exposures, which may alternatively be left open, partially or fully hedged. By policy, the Company maintains hedge coverages between minimum and maximum percentages of its anticipated foreign currency exposures for any given year. 45 Foreign Currency Contracts - -------------------------- The Company enters into foreign currency forward exchange contracts and swap agreements primarily as hedges of inventory purchases, sales and other intercompany transactions denominated in foreign currencies to limit the effect of exchange rate fluctuations on the Company's results of operations and cash flows. These contracts generally have maturity dates ranging from one to 17 months. Gains or losses related to hedged transactions are deferred and are recognized in results of operations as a part of the underlying transaction. Had the Company not entered into hedges covering a percentage of its foreign currency positions, the favorable effect on 1995 pre-tax income would have approximated $10 million. As of December 31, 1995 and 1994, the Company held the following contracts to obtain US dollars (in thousands):
1995 1994 ---------------------- ---------------------- Notional Notional Amount Fair Value Amount Fair Value ---------- ---------- ---------- ---------- Forwards $491,210 $264,783 Swaps 135,477 65,155 ---------- ---------- $626,687 $630,287 $329,938 $329,540 ========== ========== ========== ==========
Fair value reflects the amount, based on dealer quotes, the Company would receive at maturity for contracts involving the same currencies and maturity dates, if they had been entered into as of year-end 1995 and 1994, respectively. As of December 31, 1995 and 1994, the Company held the following contracts to purchase foreign currencies (in thousands):
1995 1994 ---------------------- ---------------------- Notional Notional Amount Fair Value Amount Fair Value ---------- ---------- ---------- ---------- Forwards $198,006 $ 57,898 Swaps 59,899 124,746 ---------- ---------- $257,905 $257,019 $182,644 $184,417 ========== ========== ========== ==========
Fair value reflects the amount, based on dealer quotes, the Company would pay at maturity for contracts involving the same currencies and maturity dates, if they had been entered into as of year-end 1995 and 1994, respectively. The following table summarizes the Company's foreign currency contracts by major currency as of December 31, 1995 and 1994 (in thousands of US dollars):
1995 1994 ---------------------- ---------------------- Buy Sell Buy Sell ---------- ---------- ---------- ---------- US dollars $626,687 $227,944 $329,938 $177,589 German deutsche marks 33,424 157,738 91,740 81,620 Italian lira - 54,481 - 15,240 Malaysian ringgits 78,071 - 5,034 - Hong Kong dollars 72,274 - 47,809 - French francs - 117,150 18,481 57,685 British pounds sterling - 78,092 - 51,268 Canadian dollars 21,127 45,541 6,485 25,270 Spanish pesetas - 30,271 - 17,141 Dutch guilders 22,379 68,468 - 46,926 Japanese yen - 51,534 - 17,757 Australian dollars - 20,762 - 14,306 Swiss francs 12,930 8,232 9,680 5,555 Taiwan dollars 17,700 - - - Swedish krona - 6,675 - - Danish krone - 9,825 - - Other (under $5,000) - 7,879 3,415 2,225 ---------- ---------- ---------- ---------- $884,592 $884,592 $512,582 $512,582 ========== ========== ========== ==========
In order to minimize the risk of counterparty non-performance, the Company executes its foreign currency forward exchange contracts and swap agreements with financial institutions believed to be credit-worthy, generally those that provide the Company with its working capital lines of credit. The Company does not trade in financial instruments nor does it enter into contracts for speculative purposes. Letters of Credit - ----------------- The Company had outstanding irrevocable letters of credit in the amount of $6.5 million and $15.1 million as of December 31, 1995 and 1994, respectively. These letters of credit, which have terms from one month to one year, collateralize the Company's obligations to third parties for the purchase of inventory. The fair value of these letters of credit approximates contract values based on the nature of the fee arrangements with the issuing banks. Litigation - ---------- The Company is involved in various litigation and other legal matters, including claims related to product liability and environmental cleanup, which are being addressed or defended in the ordinary course of business. Management believes that any liability which may potentially result upon resolution of such matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. 46 NOTE 7 - ACQUISITIONS AND NONRECURRING ITEMS - -------------------------------------------- Acquisitions and Business Combination - ------------------------------------- On May 31, 1994, the Company acquired substantially all of the business assets and assumed the associated debts and liabilities of Kransco, a San Francisco-based designer, manufacturer and marketer of brand name recreational and sporting products for $274.6 million in cash, including costs directly related to the acquisition and the repayment of $20.0 million of Kransco's short-term borrowings. The asset purchase agreement also provided for future contingent consideration in the event that net sales of the POWER WHEELS product line reached or exceeded certain levels in each of calendar years 1994, 1995 and 1996. Under the agreement, the contingent consideration payable with respect to any year shall not exceed $8.6 million. During 1995, $8.6 million of consideration was paid related to the 1994 sales, and an additional $8.6 million was accrued, which resulted in an increase of $17.2 million to the initial goodwill. The acquisition has been accounted for under the purchase method of accounting and, accordingly, the operating results of Kransco have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the estimated fair market value of the net assets acquired was approximately $233 million, which is being amortized on a straight-line basis over 20 years. The following unaudited pro forma information presents the consolidated results of operations as if the acquisition had occurred as of the beginning of the periods presented, after giving effect to certain adjustments, including amortization of goodwill, depreciation of fixed assets acquired based on their estimated fair values, increased interest expense assuming the initial purchase consideration had resulted in additional short-term borrowings, and the elimination of intercompany transactions. This pro forma information does not purport to be indicative of what would have occurred had the acquisition been made as of these dates or of results which may occur in the future. These results reflect the highly seasonal nature of the business acquired and do not reflect the synergies achieved.
For the Year ---------------------- (In thousands, except per share amounts) 1994 1993 - ---------------------------------------- ---------- ---------- Net sales $3,248,765 $2,876,080 ---------- ---------- Income before extraordinary item and cumulative effect of changes in accounting principles 253,537 142,012 ---------- ---------- Net income $ 253,537 $ 123,309 ========== ========== INCOME PER COMMON SHARE Income before extraordinary item and cumulative effect of changes in accounting principles $ 0.89 $ 0.52 ---------- ---------- Net income $ 0.89 $ 0.45 ========== ==========
In July 1994, the Company acquired a majority of the shares of Spear, a company organized in the United Kingdom, that holds the rights to SCRABBLE in markets outside of the United States and Canada, and certain other games worldwide. The aggregate purchase price, including related acquisition costs, denominated in pounds sterling, was approximately $100 million. The acquisition has been accounted for by the purchase method and, accordingly, the results of operations of Spear have been included in the Company's consolidated financial statements since the date of acquisition. The excess of cost over the estimated fair market value of the net assets acquired was approximately $100 million, which is being amortized on a straight-line basis over 20 years. The purchase price allocation included accruals related to involuntary termination or relocation of employees of the acquired company of approximately $11 million, and costs associated with closure of a manufacturing facility of approximately $5 million. The $10 million remaining accrual at December 31, 1995 primarily relates to severance and other costs associated with the plant closure, which is expected to be completed by the end of 1996. On November 30, 1993, the Company completed a merger transaction, accounted for as a pooling of interests, with Fisher-Price, Inc., a manufacturer and marketer of infant and preschool toys and juvenile products. The merger, valued on the merger's effective date at $1.19 billion, was effected by the exchange of 2.490 shares (1.275 shares prior to stock splits) of Mattel common stock for each outstanding Fisher-Price common share. Financial information for periods preceding the merger were retroactively restated to reflect the combined operations of the companies. Nonrecurring Items - ------------------ In the 1994 fourth quarter, the Company recognized a $72.0 million pre-tax charge against continuing operations in connection with the consolidation of manufacturing operations and the reduction of headquarters expense and support functions worldwide. Of these charges, approximately $36 million was related to severance costs from elimination of approximately 1,000 positions, $15 million represented restricted stock awards related to the Fisher-Price integration, $14 million for termination of various distribution and lease agreements, $4 million for the writedown of fixed assets to their net realizable value in connection with the elimination of excess manufacturing capacity, and other costs of $3 million. After related tax effects, the net $46.8 million charge impacted 1994 earnings by $0.17 per share. 47 At December 31, 1995, the remaining $13.0 million accrual related primarily to committed severance plans and obligations under certain long- term leases. The type and amount of charges incurred to date approximated the amounts included in the provision. In connection with its merger with Fisher-Price, the Company recognized a one-time charge of $115.0 million, pre-tax, in the 1993 fourth quarter. After related tax effects, the net $90.4 million charge impacted 1993 earnings by $0.34 per share. As of December 31, 1994, the integration and restructuring activity provided for by the 1993 charge was substantially complete and amounts previously accrued had been paid. The type and amount of charges actually incurred approximated the amounts included in the provision. NOTE 8 - FINANCIAL INFORMATION BY GEOGRAPHIC AREA - ------------------------------------------------- The Company's business consists of the design, manufacture and marketing of toys on a worldwide basis. The Company's international operations are located principally in Europe, Canada, Latin America and Asia. Consolidated liabilities of these subsidiaries were approximately $381 million, $421 million and $300 million at December 31, 1995, 1994 and 1993, respectively. The Company's toy products are sold throughout the world. Credit is granted to customers on an unsecured basis, and generally provides for extended payment terms which result in a substantial portion of trade receivables being collected during the latter half of the year. In the United States, toys are distributed directly to large retailers, including discount and free-standing toy stores, chain stores, department stores, other retail outlets, and to a limited extent, wholesalers. Internationally, the Company sells its products directly in Argentina, Australia, Austria, the Benelux countries, Canada, Chile, Colombia, France, Germany, Greece, Italy, Japan, Mexico, New Zealand, Portugal, Scandinavia, Spain, Switzerland, the United Kingdom, Venezuela, and in certain areas of Eastern Europe and Asia. The Company's products are marketed principally through distributors in certain parts of Latin America, the Middle East and Southeast Asia, and the Company also licenses some of its products to outside manufacturers for sale in Brazil, Peru, and other Latin American countries. In the fourth quarter of 1993, the Company's distributorship agreement for Nintendo Nintendo products in Australia was terminated. The Company's worldwide sales to customers accounting for more than 10% of consolidated net sales and related accounts receivable are as follows (in millions):
1995 1994 1993 ---------- ---------- ---------- Worldwide sales for the year ended - ---------------------------------- Toys R Us $830.5 $734.1 $598.7 Wal-Mart 446.0 417.7 277.3 Accounts receivable as of December 31 - ------------------------------------- Toys R Us $116.4 $156.6 $156.8 Wal-Mart 50.7 104.3 63.2 - -------------------------------------------------------------------------
Information by geographic area is set forth in the tables below. Profit from operations represents income before income taxes, interest expense and general corporate expenses. Sales between geographic areas are based upon transfer prices which include manufacturing cost and profit.
Profit From Identifiable (In thousands) Net Sales Operations Assets - -------------- ----------- ------------ ------------ 1995 United States $2,546,903 $327,685 $1,196,742 Europe and Canada 1,234,048 231,010 742,721 Asia and Latin America 1,533,256 138,498 405,615 ----------- ------------ ----------- 5,314,207 697,193 2,345,078 Sales and transfers between geographic areas (a) (1,675,395) - - Interest expense - (73,589) - Corporate and other - (90,702) 350,431 ----------- ------------ ----------- Consolidated total $3,638,812 $532,902 $2,695,509 =========== ============ =========== 1994 United States $2,315,778 $305,874 $1,150,514 Europe and Canada 1,066,349 143,658 715,021 Asia and Latin America 1,287,502 130,247 396,100 ----------- ------------ ----------- 4,669,629 579,779 2,261,635 Sales and transfers between geographic areas (a) (1,464,604) - - Interest expense - (55,449) - Corporate and other - (130,698) 197,391 ----------- ------------ ----------- Consolidated total $3,205,025 $393,632 $2,459,026 =========== ============ =========== 1993 United States $1,873,249 $187,923 $ 718,688 Europe and Canada 908,030 68,270 545,406 Asia and Latin America 993,001 96,924 290,759 ----------- ------------ ----------- 3,774,280 353,117 1,554,853 Sales and transfers between geographic areas (a) (1,069,832) - - Interest expense - (62,614) - Corporate and other - (53,857) 445,224 ----------- ------------ ----------- Consolidated total $2,704,448 $236,646 $2,000,077 =========== ============ =========== (a) Primarily from Asia to other regions of the world.
48 NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - ---------------------------------------------------- Due to seasonality of the Company's earnings, exclusion of antidilutive common stock equivalents in certain periods and fluctuation in the Company's common stock price, the sum of income per share amounts reported for each of the four quarters may not equal income per share reported for the full year.
(In thousands, except per share First Second Third Fourth amounts) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 Net sales $543,570 $763,474 $1,176,484 $1,155,284 Gross profit 259,025 366,689 582,949 580,499 Advertising and promotion expenses 78,600 106,718 182,355 216,824 Other selling and administrative expenses 131,918 141,498 159,359 170,286 Other (income) expense, net (a) (3,414) (730) (9,025) 8,282 Operating profit (b) 51,921 119,203 250,260 185,107 Income before taxes 40,844 101,210 227,526 163,322 Net income 26,958 67,496 151,326 112,022 Preference stock dividend requirements (1,099) (1,099) (1,099) (45) Net income applicable to common shares 25,859 66,397 150,227 111,977 Income per share (c): Net income $ 0.09 $ 0.24 $ 0.53 $ 0.40 Average number of common and common equivalent shares 279,853 280,691 281,904 280,916 Dividends declared per common share (c) $ 0.048 $ 0.048 $ 0.048 $ 0.048 Common stock market price (c) High $ 19.80 $ 22.20 $ 24.50 $ 24.90 Low 15.76 18.20 20.30 21.20 YEAR ENDED DECEMBER 31, 1994 Net sales $487,271 $650,263 $1,037,082 $1,030,409 Gross profit 238,104 314,505 528,960 519,934 Advertising and promotion expenses 71,630 94,010 161,298 189,547 Other selling and administrative expenses 116,797 118,608 140,601 160,437 Restructuring charge (d) - - - 72,000 Other expense, net (e) 3,285 1,315 5,967 16,927 Operating profit (b) 46,392 100,572 221,094 81,023 Income before taxes 38,269 89,082 202,820 63,461 Net income 24,069 57,082 131,820 42,861 Preference stock dividend requirements (1,223) (1,223) (1,152) (1,091) Net income applicable to common shares 22,846 55,859 130,668 41,770 Income per share (c): Net income $ 0.08 $ 0.20 $ 0.46 $ 0.15 Average number of common and common equivalent shares 273,495 280,904 282,412 280,616 Dividends declared per common $ 0.038 $ 0.038 $ 0.038 $ 0.038 share (c) Common stock market price (c) High $ 17.20 $ 17.44 $ 18.40 $ 18.88 Low 13.20 14.88 16.32 15.68 - ------------------------------------------------------------------------------- (a) Third quarter includes a $9.1 million gain from the sale of the non-toy business and worldwide trademark rights related to Corgi. (b) Represents income from operations before interest expense and provision for income taxes. (c) Per share data and market prices for all periods reflect the retroactive effect of stock splits distributed to shareholders in March 1996 and January 1995. (d) Represents a nonrecurring charge principally related to the consolidation of manufacturing operations and the reduction of headquarters expense and support functions worldwide. (e) Fourth quarter includes a $19.8 million foreign exchange transaction loss resulting from devaluation of the Mexican peso.
49 NOTE 10 - SUPPLEMENTAL FINANCIAL INFORMATION - --------------------------------------------
As of Year End ---------------------- (In thousands) 1995 1994 - ------------------------------------------ ---------- ---------- INVENTORIES INCLUDE THE FOLLOWING: Raw materials and work in process $ 52,528 $ 50,334 Finished goods 298,313 288,809 ---------- ---------- $350,841 $339,143 ========== ========== PREPAID EXPENSES AND OTHER CURRENT ASSETS INCLUDE THE FOLLOWING: Deferred income taxes $ 87,965 $114,808 Other 89,273 67,867 ---------- ---------- $177,238 $182,675 ========== ========== INTANGIBLE ASSETS, NET, INCLUDE THE FOLLOWING: Goodwill $411,258 $418,903 Other 11,538 13,329 ---------- ---------- $422,796 $432,232 ========== ========== ACCRUED LIABILITIES INCLUDE THE FOLLOWING: Advertising and promotion $ 96,669 $102,115 Compensation 82,751 85,229 Restructuring charge 16,224 67,649 Other 214,718 198,153 ---------- ---------- $410,362 $453,146 ========== ========== For the Year ------------------------------- (In thousands) 1995 1994 1993 - ------------------------------------ --------- ---------- ---------- SELLING AND ADMINISTRATIVE EXPENSES INCLUDE THE FOLLOWING: Research and development $111,280 $93,153 $75,415 - -------------------------------------------------------------------------
Accounts Receivable - ------------------- Accounts receivable are shown net of allowances for doubtful accounts. In addition, the Company has reduced its accounts receivable by $22.9 million and $17.2 million in December 1995 and 1994, respectively, to reflect the writedown of certain uncollectible receivables to their net realizable value. Statements of Cash Flows - ------------------------ For the years ended December 31, 1995, 1994 and 1993, cash paid for interest totaled $75.5 million, $52.9 million and $76.1 million, respectively. Cash paid for income taxes in each of the three years was $168.4 million, $66.3 million and $55.7 million, respectively. Significant noncash investing and financing activities were as follows: . During the 1994 first quarter, holders tendered $75.7 million aggregate par value of the 8% Debentures for conversion into 9.2 million shares of the Company's common stock. During the 1993 fourth quarter, holders tendered $24.3 million aggregate par value of the 8% Debentures for conversion into 3.0 million shares of the Company's common stock. . The November 1993 merger with Fisher-Price in a stock-for-stock transaction neither used nor provided cash (see Note 7.) The Company's consolidated financial statements, consistent with pooling of interests accounting treatment, reflect retroactive restatement for the effects of the merger. Because the merger transaction neither provided nor used cash with respect to the combined companies, the effect of consolidating financial statement balances is not reflected in the statement of cash flows. . The effects of changes in accounting principles related to the Company's adoption of Statements of Financial Accounting Standards Nos. 106 and 109 in the 1993 first quarter neither provided nor used cash, and accordingly, have been excluded from the statement of cash flows. NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS - --------------------------------------- Impairment of Long-Lived Assets and Those to Be Disposed Of - ----------------------------------------------------------- Statement of Financial Accounting Standards No. 121, Accounting for the ------------------ Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed - ------------------------------------------------------------------------ Of, is effective for fiscal years beginning after December 15, 1995. This - -- Statement requires that long-lived assets and certain identifiable intangibles to be held and used by the Company be reviewed for impairment whenever there is an indication that the carrying amount of the asset may not be recoverable. Measurement of an impairment loss should be based on the fair value of the asset. This Statement also requires that any such assets that are to be disposed of be reported at the lower of carrying amount or fair value less cost to sell, except for assets covered by Accounting Principles Board ("APB") Opinion No. 30, Reporting the Effects --------------------- of Disposal of a Segment of a Business, and Extraordinary, Unusual and - ---------------------------------------------------------------------- Infrequently Occurring Events and Transactions. Adoption of the Statement - ---------------------------------------------- is not expected to have a material impact on the Company's financial position and results of operations as no such impairments have been identified at this time. Stock-Based Compensation - ------------------------ The disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, are effective for --------------------------------------- transactions entered into in fiscal years that begin after December 15, 1995. This statement encourages entities to account for employee stock option or similar equity instruments using a fair value approach for all such plans. However, it also allows an entity to continue to measure compensation cost for those plans using the method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Those entities ---------------------------------------- which elect to remain with the accounting in APB No. 25 are required to include pro forma disclosures of net income and earnings per share as if the fair value-based method of accounting had been applied. The Company has elected to continue to account for such plans under the provisions of APB No. 25. Therefore, there will be no effect on the Company's financial position and results of operations as a result of this pronouncement. 50 MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING ----------------------------------------------------------- Management is responsible for the preparation of the Company's consolidated financial statements and the related financial and nonfinancial information appearing in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles and, in the opinion of management, present fairly the Company's financial position, results of operations and cash flows. The financial statements necessarily contain some amounts that are based on the best estimates and judgments of management. The Company maintains accounting and internal control systems which management believes are adequate to provide reasonable assurance, in relation to reasonable cost, as to the integrity and reliability of the financial statements and as to protection of assets from unauthorized use or disposition. The selection and 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. The Company's internal auditors are directed to examine the adequacy and effectiveness of the Company's system of internal accounting, administrative and operational controls. They conduct formal and systematic reviews to determine that operations are adequately controlled and to assure that assets are effectively safeguarded. The Board of Directors has appointed an audit committee, composed entirely of nonemployee directors. The committee meets regularly with financial management, internal auditors and the independent accountants to review accounting control, auditing and financial reporting matters. Price Waterhouse LLP, independent accountants, have been retained to audit the Company's consolidated financial statements. They conduct a review of internal accounting controls to the extent required by generally accepted auditing standards and perform such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements. /s/ Francesca Luzuriaga - ----------------------- Francesca Luzuriaga Executive Vice President and Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholders of Mattel, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Mattel, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP - ----------------------- Los Angeles, California February 6, 1996 51 DIRECTORS AND OFFICERS ---------------------- Mattel, Inc. and Subsidiaries
BOARD OF DIRECTORS CORPORATE OFFICERS John W. Amerman (1) John W. Amerman Chairman and Chief Executive Officer, Chairman and Chief Executive Officer Mattel, Inc. Jill E. Barad (4) (5) Jill E. Barad President and Chief Operating Officer, President and Chief Operating Officer Mattel, Inc. Dr. Harold Brown (4) (5) James A. Eskridge Senior Managing Director, E.M. Warburg, Group President, Mattel, Worldwide Pincus & Co., Inc. James A. Eskridge (5) Byron Davis Group President, Mattel, Worldwide President, Fisher-Price, Inc. Tully M. Friedman (1) (3) Joseph C. Gandolfo (5) Founding Partner, Hellman & Friedman President, Mattel Operations Ronald M. Loeb (3) Ned Mansour Partner, Irell & Manella President, Mattel USA Edward H. Malone (1) (2) (4) William J. Quinlan Retired Vice President, General Electric Co. President, ARCOTOYS Edward N. Ney (3) (5) Francesca Luzuriaga Chairman of the Board of Advisors, Executive Vice President and Chief Burson-Marsteller Financial Officer William D. Rollnick (1) (2) (3) E. Joseph McKay Retired Chairman, Genstar Rental Senior Vice President, Human Resources Electronics, Inc. Christopher A. Sinclair John T. Phippen Chairman and Chief Executive Officer, Senior Vice President and Chief Pepsi-Cola Company Information Officer John L. Vogelstein (1) (2) (3) Gary P. Rolfes Vice Chairman of the Board, President, Senior Vice President and Controller and Director, E.M. Warburg, Pincus & Co., Inc. William Stavro Senior Vice President and Treasurer (1) Member, Executive/Finance Committee John L. Vogelstein, Chairman (2) Member, Compensation/Options Committee John L. Vogelstein, Chairman (3) Member, Audit Committee William D. Rollnick, Chairman (4) Member, Pension Committee Edward H. Malone, Chairman (5) Member, Foundation Committee Dr. Harold Brown, Chairman
52 CORPORATE INFORMATION --------------------- Mattel, Inc. and Subsidiaries Transfer Agent and Registrar - ---------------------------- Mattel, Inc. Common Stock The First National Bank of Boston c/o Boston EquiServe, L.P. Note Trustees - ------------- Mattel, Inc. 6-3/4% Senior Notes due May 15, 2000 PNC Bank, N.A. One Oliver Plaza, 23rd Floor Pittsburgh, Pennsylvania 15265 Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997 State Street Bank and Trust Company Corporate Services Division P.O. Box 778 Boston, Massachusetts 03102 Mattel, Inc. Medium-Term Notes Chemical Trust Company of California 300 South Grand Avenue Los Angeles, California 90071 Stock Exchange Listings - ----------------------- Mattel, Inc. Common Stock and Mattel, Inc. Preference Share Purchase Rights New York and Pacific Stock Exchanges Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997 New York Stock Exchange Shareholder Administration - -------------------------- Inquiries relating to shareholder accounting records, stock transfer and dividends (including dividend reinvestment) should be directed to: The First National Bank of Boston c/o Boston EquiServe, L.P. 150 Royall Street Canton, Massachusetts 02021 (overnight or courier delivery only) or P.O. Box 644 Boston, Massachusetts 02102 Telephone: 617-575-3170 or 800-730-4001 Common Shareholders - ------------------- As of March 1, 1996, there were approximately 37,000 holders of record of Mattel, Inc. Common Stock Annual Meeting - -------------- The Annual Meeting of Shareholders will be held May 8, 1996, at 10:00 a.m. in the Manhattan Ballroom of the Radisson Plaza Hotel, Manhattan Beach, California Form 10-K - --------- Mattel's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1995, is available upon request by writing to the Secretary of the Company, 333 Continental Boulevard, El Segundo, California 90245 Trademark Legends - ----------------- Cabbage Patch Kids [trademark] and [copyright] Original Appalachian Artworks, Inc., used under license. Disney characters: [copyright] Disney. Nickelodeon and related trademarks [trademark] and [copyright] Viacom International Inc. Polly Pocket and characters [trademark] and [copyright] Bluebird Toys (UK) Ltd., England. Barbie, Fisher-Price, Frisbee, Hacky Sack, Hot Wheels, Hula Hoop, Morey, See 'N Say, UNO and Wonder Tools are trademarks of Mattel, Inc. [copyright] 1996 Mattel, Inc. All Rights Reserved Printed in U.S.A. Printed on recycled paper.

EXHIBIT 21.0 (Page 1 of 3) SUBSIDIARIES OF MATTEL, INC. ---------------------------- Percentage of Voting Securities Jurisdiction Owned Directly in Which or Indirectly Subsidiaries(1) Organized By Parent(2) - ---------------------------------------- ------------------ ----------------- Arco Toys, Limited Hong Kong 100% ARCOTOYS, Inc. Delaware 100% Far West Insurance Company, Limited Bermuda 100% Fisher-Price, Inc. Delaware 100% Fisher-Price, N.V. Belgium 100% Fisher-Price Beteiligungs-G.m.b.H. Germany 100% Mattel G.m.b.H. Germany 100% Mattel Toys K.F.T. Hungary 100% Mattel Spol. S.R.O. Czech Republic 100% Fisher-Price, S.r.l. Italy 100% Fisher-Price de Mexico, S.A. de C.V. Mexico 100% Fisher-Price, S.A Spain 100% International Games, Inc. Delaware 100% Juegos California, S.A. de C.V. Mexico 100% Mabamex, S.A. de C.V. Mexico 100% Mattel Argentina S.A. Argentina 100% Mattel Asia Limited Hong Kong 100% Mattel B.V. The Netherlands 100% Mattel Chile S.A. Chile 100% Mattel Colombia S.A. Colombia 100% Mattel Espana, S.A. Spain 100% Mattel Europa B.V. The Netherlands 100% Mattel France S.A. France 100% Corolle S.A. France 100% Mattel Portugal Limitada Portugal 100% Mattel Gesellschaft m.b.H. Austria 100% 1 All of the subsidiaries listed above are included in the Consolidated Financial Statements. Eight are not named because, when considered in the aggregate, they do not constitute a significant subsidiary. Furthermore, approximately seven subsidiaries are inactive and financial statements are not prepared for such companies. 2 Parent refers to Mattel, Inc. (a Delaware corporation) and excludes Directors' qualifying shares. EXHIBIT 21.0 (Page 2 of 3) SUBSIDIARIES OF MATTEL, INC. ---------------------------- Percentage of Voting Securities Jurisdiction Owned Directly in Which or Indirectly Subsidiaries(1) Organized By Parent(2) - ---------------------------------------- ------------------ ----------------- Mattel Holding, Inc. Delaware 100% Mattel U.K. Limited U.K. 100% Fisher-Price Toys Ltd. U.K. 100% Mattel Group PLC U.K. 100% J.W. Spear & Sons PLC U.K. 100% J.W. Spear & Sons Pty. Limited Australia 100% J.W. Spear B.V. The Netherlands 100% Mattel Holdings Limited Canada 100% Mattel Canada, Inc. Canada 100% Mattel I., Inc. Delaware 100% Mattel Toys, S.r.l. Italy 100% Mattel A.E.B.E. Greece 100% Mattel A.G. Switzerland 100% Mattel Manufacturing Europe, S.r.l. Italy 100% Mattel K.K. Japan 100% Mattel (K.L.) Sdn.Bhd. Malaysia 100% Mattel (Malaysia) Sdn.Bhd. Malaysia 100% Mattel Media, Inc. Delaware 100% Mattel (NZ) Limited New Zealand 60% Mattel Operations, Inc. Delaware 100% Mattel Overseas, Inc. California 100% Mattel Toys Vendor Operations Limited Hong Kong 100% Mattel Pty. Limited Australia 100% Mattel Realty Corporation Delaware 100% Mattel, S.A. de C.V. Mexico 100% Aurimat, S.A. de C.V. Mexico 100% Mattel de Mexico, S.A. de C.V. Mexico 100% Mattel Servicios, S.A. de C.V. Mexico 100% Mattel Sales Corp. California 100% 1 All of the subsidiaries listed above are included in the Consolidated Financial Statements. Eight are not named because, when considered in the aggregate, they do not constitute a significant subsidiary. Furthermore, approximately seven subsidiaries are inactive and financial statements are not prepared for such companies. 2 Parent refers to Mattel, Inc. (a Delaware corporation) and excludes Directors' qualifying shares. EXHIBIT 21.0 (Page 3 of 3) SUBSIDIARIES OF MATTEL, INC. ---------------------------- Percentage of Voting Securities Jurisdiction Owned Directly in Which or Indirectly Subsidiaries(1) Organized By Parent(2) - ---------------------------------------- ------------------ ----------------- Mattel Scandinavia A/S Denmark 100% Mattel Southeast Asia Pte. Ltd. Singapore 100% Mattel Tools Sdn.Bhd. Malaysia 100% Mattel Toys (HK) Limited Hong Kong 100% Mattel Toys Polska Sp. Z.O.O. Poland 100% Mattel Toys (Taiwan) Corporation Ltd. Taiwan 100% Mattel de Venezuela, C.A. Venezuela 100% Montoi S.A. de C.V. Mexico 100% P.T. Mattel Indonesia Indonesia 95% Precision Moulds Limited Hong Kong 100% 1 All of the subsidiaries listed above are included in the Consolidated Financial Statements. Eight are not named because, when considered in the aggregate, they do not constitute a significant subsidiary. Furthermore, approximately seven subsidiaries are inactive and financial statements are not prepared for such companies. 2 Parent refers to Mattel, Inc. (a Delaware corporation) and excludes Directors' qualifying shares.


                                                                   EXHIBIT 23.0

                       CONSENT OF INDEPENDENT ACCOUNTANTS
                       ----------------------------------


We hereby consent to the incorporation by reference in each of the eight
Registration Statements on Form S-8 (No. 33-54391, No. 33-52723, No. 33-14717,
No. 33-51454, No. 33-34920, No. 33-57082, No. 33-62185 and No. 333-01061) and
in each Prospectus constituting part of the two Registration Statements on
Form S-3 (No. 33-54927 and No. 33-46947) of Mattel, Inc. and its subsidiaries
of our report dated February 6, 1996, appearing on page 51 of the December 31,
1995 Annual Report to Shareholders which is incorporated by reference in this
Annual Report on Form 10-K.  We also consent to the incorporation by reference
of our report on the Financial Statement Schedule, which appears on page 26 of
the Company's Annual Report on Form 10-K.




/s/ PRICE WATERHOUSE LLP
- ------------------------
Los Angeles, California
March 22, 1996


 


5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 466,082 17,375 690,071 10,788 350,841 1,690,819 765,199 265,885 2,695,509 847,681 475,003 279,058 0 0 996,111 2,695,509 3,638,812 3,638,812 1,849,650 1,849,650 1,182,671 0 73,589 532,902 175,100 357,802 0 0 0 357,802 1.26 1.26 Note - Fully diluted earnings per share for the year ended December 31, 1995 has been submitted in accordance with Regulation S-K, Item 601 (b)(11), although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.