0000898430-01-503134.txt : 20011030 0000898430-01-503134.hdr.sgml : 20011030 ACCESSION NUMBER: 0000898430-01-503134 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTEL INC /DE/ CENTRAL INDEX KEY: 0000063276 STANDARD INDUSTRIAL CLASSIFICATION: DOLLS & STUFFED TOYS [3942] IRS NUMBER: 951567322 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05647 FILM NUMBER: 1767785 BUSINESS ADDRESS: STREET 1: 333 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3102522000 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-05647 ----------- MATTEL, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-1567322 ------------------------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Continental Boulevard, El Segundo, California 90245-5012 ----------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (310) 252-2000 ------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) 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 [_] Number of shares outstanding of registrant's common stock, $1.00 par value, (including 1,152,822 common shares issuable upon exchange of outstanding exchangeable shares of Softkey Software Products Inc.) as of October 19, 2001: 431,629,602 shares PART I -- FINANCIAL INFORMATION Mattel, Inc. and Subsidiaries Consolidated Balance Sheets
Sept. 30, Sept. 30, 2001 2000 Dec. 31, (In thousands) (Unaudited) (Unaudited) 2000 ----------------------------------------------------------------------------------------------------- Assets Current Assets Cash and short-term investments $ 65,737 $ 95,815 $ 232,389 Accounts receivable, net 1,591,405 1,456,314 839,567 Inventories 739,724 655,706 489,742 Prepaid expenses and other current assets 181,446 250,406 189,799 ------------------------------------------------------------------------------------------------------ Total current assets 2,578,312 2,458,241 1,751,497 ------------------------------------------------------------------------------------------------------ Property, Plant and Equipment Land 33,404 32,993 32,793 Buildings 262,619 257,670 257,430 Machinery and equipment 604,535 560,875 564,244 Capitalized leases 23,271 23,271 23,271 Leasehold improvements 75,615 71,831 74,988 ------------------------------------------------------------------------------------------------------ 999,444 946,640 952,726 Less: accumulated depreciation 538,242 456,651 472,986 ------------------------------------------------------------------------------------------------------ 461,202 489,989 479,740 Tools, dies and molds, net 152,625 172,202 168,092 ------------------------------------------------------------------------------------------------------ Property, plant and equipment, net 613,827 662,191 647,832 ------------------------------------------------------------------------------------------------------ Other Noncurrent Assets Intangible assets, net 1,123,264 1,149,548 1,136,857 Other assets 735,837 548,972 765,671 Net investment in discontinued operations - 24,944 11,540 ------------------------------------------------------------------------------------------------------ $5,051,240 $4,843,896 $4,313,397 =====================================================================================================
The accompanying notes are an integral part of these financial statements. 2 Mattel, Inc. and Subsidiaries Consolidated Balance Sheets (Continued)
Sept. 30, Sept. 30, 2001 2000 Dec. 31, (In thousands, except share data) (Unaudited) (Unaudited) 2000 ------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity Current Liabilities Short-term borrowings $ 735,136 $ 737,459 $ 226,403 Current portion of long-term debt 244,946 2,582 32,723 Accounts payable 383,882 373,994 338,966 Accrued liabilities 687,552 933,675 703,382 Income taxes payable 196,968 47,792 200,933 ------------------------------------------------------------------------------------------------------------------ Total current liabilities 2,248,484 2,095,502 1,502,407 ------------------------------------------------------------------------------------------------------------------ Long-Term Liabilities Long-term debt 1,021,118 1,273,076 1,242,396 Other 171,395 167,240 165,496 ------------------------------------------------------------------------------------------------------------------ Total long-term liabilities 1,192,513 1,440,316 1,407,892 ------------------------------------------------------------------------------------------------------------------ Stockholders' Equity Special voting preferred stock $1.00 par value, $10.00 liquidation preference per share, one share authorized, issued and outstanding, representing the voting rights of 1.2 million, 2.2 million and 1.6 million outstanding exchangeable shares, respectively - - - Common stock $1.00 par value, 1.0 billion shares authorized; 436.2 million shares, 435.2 million shares, and 435.6 million shares issued, respectively 436,195 435,232 435,560 Additional paid-in capital 1,648,765 1,711,813 1,706,614 Treasury stock at cost; 6.0 million shares, 10.9 million shares, and 9.6 million shares, respectively (181,206) (327,670) (288,622) Retained earnings (accumulated deficit) 16,524 (215,545) (144,417) Accumulated other comprehensive loss (310,035) (295,752) (306,037) ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 1,610,243 1,308,078 1,403,098 ------------------------------------------------------------------------------------------------------------------ $ 5,051,240 $ 4,843,896 $ 4,313,397 ==================================================================================================================
The accompanying notes are an integral part of these financial statements. 3 Mattel, Inc. and Subsidiaries Consolidated Statements of Operations
For the For the Three Months Ended Nine Months Ended ------------------------------- ------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, (Unaudited; in thousands, except per share amounts) 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------------------- Net Sales $ 1,612,767 $ 1,583,763 $ 3,198,981 $ 3,094,821 Cost of sales 839,488 917,145 1,719,569 1,749,967 ----------------------------------------------------------------------------------------------------------------------- Gross Profit 773,279 666,618 1,479,412 1,344,854 Advertising and promotion expenses 212,885 225,209 413,149 415,082 Other selling and administrative expenses 230,264 224,695 649,886 697,605 Amortization of intangibles 12,728 13,275 38,265 39,180 Restructuring and other charges - 17,900 13,000 15,900 Interest expense 39,553 42,625 114,065 102,926 Other expense (income), net 2,258 7,656 11,478 (7,743) ----------------------------------------------------------------------------------------------------------------------- Income From Continuing Operations Before Income Taxes 275,591 135,258 239,569 81,904 Provision for income taxes 75,756 31,564 66,627 16,835 ----------------------------------------------------------------------------------------------------------------------- Income From Continuing Operations 199,835 103,694 172,942 65,069 Discontinued Operations Loss from discontinued operations, net of taxes of ($154.1) million and ($207.1) million, respectively - (440,560) - (567,166) ----------------------------------------------------------------------------------------------------------------------- Income (Loss) Before Cumulative Effect of Change in Accounting Principles 199,835 (336,866) 172,942 (502,097) Cumulative effect of change in accounting principles, net of tax - - (12,001) - ----------------------------------------------------------------------------------------------------------------------- Net Income (Loss) Applicable to Common Shares $ 199,835 $ (336,866) $ 160,941 $ (502,097) ======================================================================================================================= Income Per Common Share - Basic Income from continuing operations $ 0.46 $ 0.24 $ 0.40 $ 0.15 Loss from discontinued operations - (1.03) - (1.33) Cumulative effect of change in accounting principles - - (0.03) - ----------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.46 $ (0.79) $ 0.37 $ (1.18) ======================================================================================================================= Weighted average number of common shares 431,250 426,394 430,703 425,903 ======================================================================================================================= Income Per Common Share - Diluted Income from continuing operations $ 0.46 $ 0.24 $ 0.40 $ 0.15 Loss from discontinued operations - (1.03) - (1.33) Cumulative effect of change in accounting principles - - (0.03) - ----------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.46 $ (0.79) $ 0.37 $ (1.18) ======================================================================================================================= Weighted average number of common and common equivalent shares 436,316 426,945 435,336 426,712 ======================================================================================================================= Dividends Declared Per Common Share $ - $ 0.09 $ - $ 0.27 =======================================================================================================================
The accompanying notes are an integral part of these financial statements. 4 Mattel, Inc. and Subsidiaries Consolidated Statements of Cash Flows
For the Nine Months Ended ------------------------------- Sept. 30, Sept. 30 (Unaudited; in thousands) 2001 2000 --------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income (loss) $ 160,941 $ (502,097) Deduct: loss from discontinued operations - (567,166) --------------------------------------------------------------------------------------------------------------- Income from continuing operations 160,941 65,069 Adjustments to reconcile income from continuing operations to net cash flows from operating activities: Cumulative effect of change in accounting principles, net of tax 12,001 - Noncash derivative loss 5,532 - Noncash restructuring and other charges - 25,581 Depreciation 153,403 144,318 Amortization 46,095 45,694 Increase (decrease) from changes in assets and liabilities: Accounts receivable (766,755) (481,922) Inventories (261,446) (248,687) Prepaid expenses and other current assets (12,499) (16,889) Accounts payable, accrued liabilities and income taxes payable 50,510 65,883 Deferred income taxes 30,468 1,184 Other, net (5,477) 5,446 --------------------------------------------------------------------------------------------------------------- Net cash flows used for operating activities of continuing operations (587,227) (394,323) --------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Purchases of tools, dies and molds (66,932) (61,557) Purchases of other property, plant and equipment (64,218) (53,081) Proceeds from sale of other property, plant and equipment 6,007 5,444 Payment for business acquired (20,347) - Other, net 2,769 (20) --------------------------------------------------------------------------------------------------------------- Net cash flows used for investing activities of continuing operations (142,721) (109,214) --------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Short-term borrowings, net 521,445 370,286 Proceeds from issuance of long-term debt - 390,710 Payment of long-term debt - (100,000) Exercise of stock options 45,515 11,586 Payment of dividends on common stock - (115,155) Other, net (581) (555) --------------------------------------------------------------------------------------------------------------- Net cash flows from financing activities of continuing operations 566,379 556,872 --------------------------------------------------------------------------------------------------------------- Net Cash Used for Discontinued Operations - (201,824) Effect of Exchange Rate Changes on Cash (3,083) (3,050) --------------------------------------------------------------------------------------------------------------- Decrease in Cash and Short-term Investments (166,652) (151,539) Cash and Short-term Investments at Beginning of Period 232,389 247,354 --------------------------------------------------------------------------------------------------------------- Cash and Short-term Investments at End of Period $ 65,737 $ 95,815 ===============================================================================================================
The accompanying notes are an integral part of these statements. 5 Mattel, Inc. and Subsidiaries Notes to Consolidated Financial Information 1. The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation of Mattel, Inc. and its subsidiaries' ("Mattel") financial position and interim results as of and for the periods presented have been included. Certain amounts in the financial statements for prior periods have been reclassified to conform to the current period's presentation. Because Mattel's business is seasonal, results for interim periods are not necessarily indicative of those that may be expected for a full year. The financial information included herein should be read in conjunction with Mattel's consolidated financial statements and related notes in its 2000 Annual Report to Stockholders filed on Form 10-K. 2. Accounts receivable are shown net of allowances for doubtful accounts of $32.5 million (September 30, 2001), $24.6 million (September 30, 2000), and $24.6 million (December 31, 2000). 3. Inventories are comprised of the following:
(In thousands) Sept. 30, 2001 Sept. 30, 2000 Dec. 31, 2000 ------------------------------------------------------------------------------------------------ Raw materials and work in progress $ 48,705 $ 57,418 $ 34,357 Finished goods 691,019 598,288 455,385 ------------------------------------------------------------------------------------------------ $ 739,724 $ 655,706 $ 489,742 ================================================================================================ 4. Intangibles, net include the following: (In thousands) Sept. 30, 2001 Sept. 30, 2000 Dec. 31, 2000 ------------------------------------------------------------------------------------------------ Goodwill $ 1,112,059 $ 1,141,486 $ 1,124,318 Other 11,205 8,062 12,539 ------------------------------------------------------------------------------------------------ $ 1,123,264 $ 1,149,548 $ 1,136,857 ================================================================================================ 5. Short-term borrowings include the following: (In thousands) Sept. 30, 2001 Sept. 30, 2000 Dec. 31, 2000 ------------------------------------------------------------------------------------------------ Notes payable $270,496 $119,959 $ 68,386 Commercial paper 464,640 617,500 158,017 ------------------------------------------------------------------------------------------------ $735,136 $737,459 $ 226,403 ================================================================================================ 6. Long-term debt includes the following: (In thousands) Sept. 30, 2001 Sept. 30, 2000 Dec. 31, 2000 ------------------------------------------------------------------------------------------------ Euro notes due 2002 $ - $ 190,710 $ 190,710 Unsecured term loan due 2003 200,000 200,000 200,000 6% senior notes due 2003 150,000 150,000 150,000 6-1/8% senior notes due 2005 150,000 150,000 150,000 Medium-term notes 480,000 540,500 510,000 10.15% mortgage note due 2005 41,118 41,866 41,686 ------------------------------------------------------------------------------------------------ $ 1,021,118 $ 1,273,076 $ 1,242,396 ================================================================================================
6 7. Comprehensive income (loss) is as follows:
For the Nine Months Ended ----------------------------------- (In thousands) Sept. 30, 2001 Sept. 30, 2000 --------------------------------------------------------------------------------------------- Income from continuing operations $ 172,942 $ 65,069 Loss from discontinued operations - (567,166) Cumulative effect of change in accounting principles (12,001) - --------------------------------------------------------------------------------------------- Net income (loss) 160,941 (502,097) Unrealized holding losses arising during the period (186) (2,712) Transition adjustment related to FAS 133 14,127 - Net loss on derivative instruments (2,672) - Currency translation adjustments (15,267) (53,393) --------------------------------------------------------------------------------------------- Comprehensive income (loss) $ 156,943 $ (558,202) =============================================================================================
8. Supplemental disclosure of cash flow information is as follows:
For the Nine Months Ended ------------------------------------- (In thousands) Sept. 30, 2001 Sept. 30, 2000 ------------------------------------------------------------------------------------------------------ Cash payments during the period: Interest $ 115,715 $ 120,117 Income taxes 25,642 27,270 Noncash investing and financing activities during the period: Receipt of marketable securities from sale of business $ - $ 42,167 Issuance of stock warrant - 5,789 ------------------------------------------------------------------------------------------------------
9. Effective on January 1, 2001, Mattel adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and ----------------------------------------- Hedging Activities. This statement requires companies to record derivatives ------------------- on the balance sheet as assets or liabilities, measured at fair value. It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Mattel's results of operations and cash flows may be impacted by exchange rate fluctuations. Mattel seeks to mitigate its exposure to market risk by monitoring its currency exchange exposure for the year and partially or fully hedging such exposure. In addition, Mattel manages its exposure through the selection of currencies used for international borrowings and intercompany invoicing. Mattel's results of operations can also be affected by the translation of foreign revenues and earnings into US dollars. Mattel does not trade in financial instruments for speculative purposes. At the inception of the contracts, Mattel designates its derivatives as either cash flow or fair value hedges and documents the relationship of the hedge to the underlying forecasted transaction, for cash flow hedges, or the recognized asset or liability, for fair value hedges. Hedge effectiveness is assessed at inception and throughout the life of the hedge to ensure the hedge qualifies for hedge accounting treatment. Changes in fair value associated with hedge ineffectiveness, if any, are recorded in Mattel's results of operations currently. 7 Mattel uses foreign currency forward exchange and option contracts as cash flow hedges, which generally have maturity dates of up to 18 months, to hedge its forecasted purchases and sales of inventory denominated in foreign currencies. Changes in fair value of Mattel's cash flow derivatives are deferred and recorded as part of other comprehensive income (loss) in stockholders' equity until the underlying transaction is settled. Upon settlement, any gain or loss resulting from the derivative is recorded in Mattel's results of operations. Mattel entered into a cross currency interest rate swap to convert the interest rate and principal amount from Euros to US dollars on its 200 million Euro Notes due 2002. The debt and related interest payable are marked-to-market as of each balance sheet date with the change in fair value of the derivative recorded in other comprehensive income (loss) within stockholders' equity until the loan and related interest are paid. Mattel also entered into a fair value hedge to minimize the impact of changes in market value on its results of operations from the securities received as part of the sale of CyberPatrol in 2000. Mattel uses fair value hedges to hedge intercompany loans and management fees denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts. Changes in fair value of these derivatives are recorded in Mattel's results of operations currently. As a result of adopting FAS 133, Mattel recorded a one-time transition adjustment of $12.0 million, net of tax, (or $0.03 per share) as the cumulative effect of change in accounting principle related to unrealized losses on the CyberPatrol securities that had been previously deferred in other comprehensive income (loss). During the first quarter of 2001, Mattel recorded an additional pre-tax loss of $5.5 million in other expense, net related to the decrease in fair value of the derivative. Mattel also recorded a one-time transition adjustment of $2.1 million in other comprehensive income (loss) related to unrealized gains on derivative instruments. As of September 30, 2001, $2.7 million of unrealized losses related to derivative instruments have been recorded in other comprehensive income (loss). Mattel expects to reclassify these unrealized losses from other comprehensive income (loss) to its results of operations over the life of the contracts, generally 18 months or less. 10. As part of its financial realignment plan, Mattel announced during the third quarter of 2000 a change in its dividend policy consisting of a reduction in the annual cash dividend from $0.36 per share to $0.05 per share, when and as declared by the board of directors. No quarterly dividend for the third quarter of 2001 was declared. The $0.05 per share annual dividend rate under the new dividend policy is expected to become effective in December 2001. The board of directors declared a dividend of $0.09 per share in third quarter 2000. 11. Basic income (loss) per common share is computed by dividing earnings available to common stockholders by the weighted average number of common shares and common shares obtainable upon the exchange of the exchangeable shares of Mattel's Canadian subsidiary, Softkey Software Products Inc., outstanding during each period. 8 Diluted income (loss) per common share is computed by dividing earnings available to common stockholders by the weighted average number of common shares, common shares obtainable upon the exchange of the exchangeable shares of Mattel's Canadian subsidiary, Softkey Software Products Inc., and other common equivalent shares outstanding during each period. The calculation of common equivalent shares assumes the exercise of dilutive stock options and warrants, net of assumed treasury share repurchases at average market prices, and conversion of dilutive convertible debt, as applicable. For the quarter and year to date periods ended September 30, 2001, premium price stock options totaling 15.2 million were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the quarter and year to date periods ended September 30, 2001, other nonqualified stock options totaling 13.9 million and 14.3 million, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the quarter and year to date periods ended September 30, 2000, premium price stock options totaling 18.8 million, convertible debt and warrants were excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the quarter and year to date periods ended September 30, 2000, other nonqualified stock options totaling 32.7 million and 29.7 million, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive. 12. The table below presents information about segment revenues, operating profit and assets. Mattel's reportable segments are separately managed business units and are divided on a geographic basis between domestic and international. The domestic segment is further divided into US Girls, US Boys-Entertainment, and US Infant & Preschool. The US Girls segment includes brands such as Barbie(R), Polly Pocket!(R) and American Girl(R). The US Boys-Entertainment segment includes Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing and Tyco(R) Radio Control (collectively "Wheels"), and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM) and games and puzzles (collectively "Entertainment") products. The US Infant & Preschool segment includes Fisher-Price(R), Disney preschool and plush, Power Wheels(R), Sesame Street(R) and other preschool products. The International segment sells products in all toy categories. Segment revenues do not include sales adjustments such as trade discounts and other allowances. However, such adjustments are included in the determination of segment income from operations. Segment income from operations represents income from continuing operations before interest expense and income taxes, while consolidated income from operations represents income from continuing operations before income taxes as reported in the consolidated statements of operations. The segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances. Certain information presented in the tables below has been restated to conform to the current management structure as of January 2001. Specifically, the results and assets of Pleasant Company, which had been reported as part of Other, are now being reported as part of US Girls, which is consistent with management responsibility for this business. Additionally, Mattel's toy manufacturing unit is now being managed as a cost center instead of as a profit center; therefore, toy manufacturing is no longer being reported as a separate segment. Lastly, certain overhead costs incurred at the headquarters' level in El Segundo, including facilities, 9 information technology, and other administration support costs, are now being allocated to the US Girls and US Boys-Entertainment segments, to more accurately reflect the costs associated with operating these businesses. These types of overhead costs were already being reported as part of the US Infant & Preschool and International segments since these businesses maintain their own headquarters locations.
For the Three Months Ended For the Nine Months Ended --------------------------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, (In thousands) 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------------- Revenues Domestic: US Girls $ 453,817 $ 478,672 $ 912,868 $ 938,799 US Boys-Entertainment 275,160 257,938 542,966 503,644 US Infant & Preschool 456,121 424,777 886,685 843,623 Other 1,317 357 3,903 3,598 --------------------------------------------------------------------------------------------------------------------------- Total Domestic 1,186,415 1,161,744 2,346,422 2,289,664 International 527,043 515,917 1,067,006 998,745 --------------------------------------------------------------------------------------------------------------------------- 1,713,458 1,677,661 3,413,428 3,288,409 Sales adjustments (100,691) (93,898) (214,447) (193,588) --------------------------------------------------------------------------------------------------------------------------- Net sales from continuing operations $1,612,767 $1,583,763 $3,198,981 $3,094,821 =========================================================================================================================== Operating Profit Domestic: US Girls $ 135,581 $ 134,684 $ 218,404 $ 207,115 US Boys-Entertainment 43,174 30,241 45,232 17,295 US Infant & Preschool 81,424 67,804 92,566 81,083 --------------------------------------------------------------------------------------------------------------------------- Total Domestic 260,179 232,729 356,202 305,493 International 77,722 68,461 65,642 60,021 --------------------------------------------------------------------------------------------------------------------------- 337,901 301,190 421,844 365,514 Interest expense (39,553) (42,625) (114,065) (102,926) Corporate and other (a) (22,757) (123,307) (68,210) (180,684) --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes $ 275,591 $ 135,258 $ 239,569 $ 81,904 =========================================================================================================================== Assets Sept. 30, Sept. 30, (In thousands) 2001 2000 -------------------------------------------------------------------------------------- Domestic: US Girls (b) $ 545,598 US Boys-Entertainment (b) 329,666 -------------------------------------------------------------------------------------- 875,264 $ 883,253 US Infant & Preschool 554,282 349,512 -------------------------------------------------------------------------------------- Total Domestic 1,429,546 1,232,765 International 819,179 759,674 -------------------------------------------------------------------------------------- 2,248,725 1,992,439 Corporate and other 82,404 119,581 -------------------------------------------------------------------------------------- Accounts receivable and inventories from continuing operations $2,331,129 $2,112,020 =====================================================================================
(a) For the quarter ended September 30, 2001, corporate and other includes $11.2 million of charges related to the financial realignment plan (see Note 13). For the quarter ended September 30, 2000, corporate and other includes $110.3 million of charges related to the financial realignment plan, and a $5.0 million reversal of prior year restructuring charges. For the nine months ended September 30, 2001, corporate and other includes $39.0 million of charges related to the financial realignment plan and a $5.5 million loss on derivative instruments. For the nine months ended September 30, 2000, corporate and other includes $110.3 million of charges related to the financial realignment plan, a $53.1 million charge related to the departure of certain senior executives, and a $7.0 million reversal of prior year restructuring charges. (b) Asset information was not maintained by individual segment as of September 30, 2000. 10 Mattel sells a broad variety of toy products, which are grouped into three major categories: Girls, Boys-Entertainment and Infant & Preschool. The table below presents worldwide revenues by category:
For the Three Months Ended For the Nine Months Ended ------------------------------------------------------------------------ (In thousands) Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001 Sept. 30, 2000 -------------------------------------------------------------------------------------------------------------------------- Girls $ 710,399 $ 702,645 $1,427,874 $1,375,263 Boys-Entertainment 423,235 404,363 838,607 786,521 Infant & Preschool 578,875 561,982 1,138,724 1,111,110 Other 949 8,671 8,223 15,515 -------------------------------------------------------------------------------------------------------------------------- 1,713,458 1,677,661 3,413,428 3,288,409 Sales adjustments (100,691) (93,898) (214,447) (193,588) -------------------------------------------------------------------------------------------------------------------------- Net sales from continuing operations $1,612,767 $1,583,763 $3,198,981 $3,094,821 ==========================================================================================================================
13. During the third quarter of 2000, Mattel initiated a financial realignment plan designed to improve gross margin; selling, general and administrative expenses; operating profit; and cash flow. The plan will require a total pre-tax charge estimated at $250 million, or $170 million on an after-tax basis. To date, Mattel has recorded pre-tax charges totaling $164.2 million, or approximately $112 million on an after-tax basis, related to this plan. Of the total charge, $125.2 million (approximately $84 million after-tax) was recorded in 2000 and $39.0 million (approximately $28 million after-tax) was recorded in the first nine months of 2001. In accordance with generally accepted accounting principles, future pre-tax implementation costs of approximately $86 million have not been accrued as of September 30, 2001. Mattel expects that these costs will be recorded over approximately the next two years. The following are the major initiatives included in the financial realignment plan: . Reduce excess manufacturing capacity; . Terminate a variety of licensing and other contractual arrangements that do not deliver an adequate level of profitability; . Eliminate product lines that do not meet required levels of profitability; . Improve supply chain performance and economics; . Eliminate approximately 350 positions at US-based headquarters locations in El Segundo, Fisher-Price and Pleasant Company through a combination of layoffs, elimination of open requisitions, attrition and retirements; and . Close and consolidate certain international offices. In April 2001, as part of the financial realignment plan, Mattel announced the closure of one of its North American distribution and manufacturing facilities (the "North American Strategy"). Production from the Murray, Kentucky, facility will be consolidated into existing Mattel-owned and operated facilities in North America with the final shutdown of Murray operations expected in 2002. This action is one of the realignment measures taken to lower costs. Mattel believes this action was necessary in order to maintain a competitive cost structure in today's global marketplace. 11 In 2000, Mattel recorded a pre-tax restructuring charge of $22.9 million as part of the initial phase of the financial realignment plan, of which approximately $18 million was not incurred as of December 31, 2000. This charge related to elimination of positions at headquarters locations in El Segundo, Fisher-Price and Pleasant Company, closure of certain international offices, and consolidation of facilities. During the second quarter of 2001, Mattel recorded a $13.0 million pre-tax restructuring charge as part of the financial realignment plan, largely related to the North American Strategy. Total worldwide headcount reduction as a result of the restructuring is approximately 1,700 employees, of which approximately 1,100 are related to the North American Strategy. From inception through September 30, 2001, a total of approximately $15 million has been incurred related to the termination of nearly 640 employees, of which approximately 120 were terminated during the third quarter of 2001. The components of the restructuring charges are as follows:
Balance Amounts Balance (In millions) Dec. 31, 2000 Accruals Incurred Sept. 30, 2001 ---------------------------------------------------------------------------------------------------------------------- Severance and other compensation $16 $11 $(12) $15 Lease termination costs 1 2 - 3 Other 1 - (1) - ---------------------------------------------------------------------------------------------------------------------- Total restructuring charge $18 $13 $(13) $18 ======================================================================================================================
14. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 141, Business Combinations, and 142, --------------------- Goodwill and Other Intangible Assets. FAS 141 requires that the purchase ------------------------------------ method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of goodwill separate from other intangible assets. FAS 142 eliminates the amortization of, and requires impairment testing at least annually for, goodwill and indefinite-lived intangibles. Mattel is required to adopt these statements for its fiscal year beginning January 1, 2002. Management is currently evaluating the impact of FAS 142 on Mattel's consolidated financial position and results of operations. 12 Mattel, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Certain written and oral statements made or incorporated by reference from time to time by Mattel or its representatives in this Quarterly Report on Form 10-Q, other filings or reports filed with the Securities and Exchange Commission, press releases, conferences, or otherwise, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Mattel is including this Cautionary Statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any such forward-looking statements. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements. Forward-looking statements can be identified by the use of terminology such as "believe," "anticipate," "expect," "estimate," "may," "will," "should," "project," "continue," "plans," "aims," "intends," "likely," or other words or phrases of similar terminology. Management cautions you that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. In addition to the risk factors listed in Mattel's 2000 Annual Report on Form 10-K and other important factors detailed herein and from time to time in other reports filed by Mattel with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K, the following important factors could cause actual results to differ materially from those suggested by any forward-looking statements. Marketplace Risks - Increased competitive pressure, both domestically and internationally, which may negatively affect the sales of Mattel's products - Changes in public and consumer preferences, which may negatively affect Mattel's toy business - Significant changes in the play patterns of children, whereby they are increasingly attracted to more developmentally advanced products at younger ages, which may affect brand loyalty and the perceived value of, and demand for, Mattel's products - Adverse changes in general economic conditions in the US and internationally, including adverse changes in the retail environment, which may negatively affect the sales of Mattel's products or increase costs associated with manufacturing and distributing these products - Concentration of Mattel's business with a small group of major customers - Significant buying patterns and inventory management practices of major customers - Shortages of raw materials or components, which may affect Mattel's ability to produce product in time to meet customer demand - Mattel's inability to accurately predict future consumer demand, including during the peak holiday season 13 Financing Considerations - Foreign currency exchange fluctuations, which may affect Mattel's reportable income - Significant increases in interest rates, both domestically and internationally, which may negatively affect Mattel's cost of financing both its operations and investments - Reductions in Mattel's credit ratings, which may negatively impact the cost of satisfying its financing requirements Other Risks - Mattel's ability to ensure successful implementation of all phases of its financial realignment plan and realization of the anticipated cost savings and improved cash flows - Mattel's ability to successfully implement initiatives regarding its core business, including supply chain management, customer service, international operations and employee development - Development of new technologies, including digital media and the Internet, which may create new risks to Mattel's ability to protect its intellectual property rights or affect the development, marketing and sales of Mattel's products - Changes in laws or regulations, both domestically and internationally, including those affecting the Internet, consumer products, environmental activities, import and export laws or trade restrictions, which may lead to increased costs or interruption in normal business operations of Mattel - Deterioration of political or trade relations between the US and foreign countries in which Mattel has significant manufacturing facilities or other operations and possible economic or political instability in such foreign countries - Possible terrorist activity, the threat of such activity, and responses to and results of such activity, including but not limited to effects, domestically and/or internationally, on Mattel, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions - Current and future litigation, governmental proceedings or environmental matters, which may lead to increased costs or interruption of normal business operations of Mattel - Labor disputes, which may lead to increased costs or disruption of any of Mattel's operations - Acquisitions, mergers or dispositions, which may affect profit, revenues, profit margins, debt-to-equity ratios, capital expenditures or other aspects of Mattel's business The risks included herein are not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors, which could materially and adversely impact Mattel's business, financial condition and results of operations. Moreover, Mattel operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict the impact of all such risk factors on Mattel's business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Mattel expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise. 14 Summary The following discussion should be read in conjunction with the consolidated financial statements and related notes that appear in Part I of this Quarterly Report. Mattel's consolidated financial statements for all periods present the Consumer Software segment as a discontinued operation. Unless otherwise indicated, the following discussion relates only to Mattel's continuing operations. Additionally, the segment and brand category information was restated from prior period presentation to conform to the current management structure. Mattel designs, manufactures, and markets a broad variety of toy products on a worldwide basis through both sales to retailers (i.e., "customers") and direct to consumers. Mattel's business is dependent in great part on its ability each year to redesign, restyle and extend existing core products and product lines; to design and develop innovative new products and product lines; and to successfully market those products and product lines. Mattel plans to continue to focus on its portfolio of traditional brands that have historically had worldwide sustainable appeal, to create new brands utilizing its knowledge of children's play patterns and to target customer and consumer preferences around the world. Mattel also intends to expand its core brands through the Internet, and licensing and entertainment partnerships. Mattel's portfolio of brands and products are grouped in the following categories: Girls - including Barbie(R) fashion dolls and accessories, collector dolls, Polly Pocket!(R), Diva Starz(TM), and American Girl(R) Boys-Entertainment - including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing and Tyco(R) Radio Control (collectively "Wheels"), and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM), and games and puzzles (collectively "Entertainment") Infant & Preschool - including Fisher-Price(R), Power Wheels(R), Sesame Street(R), Disney preschool and plush, Winnie the Pooh(R), Blue's Clues(R), See `N Say(R), Magna Doodle(R), and View-Master(R) Mattel's business is highly seasonal, with consumers making a large percentage of all toy purchases around the traditional holiday season in the fourth quarter. A significant portion of Mattel's customers' purchasing occurs in the third and fourth quarters in anticipation of such holiday buying. As a result of the seasonal purchasing patterns and production lead times, Mattel's business is subject to risks associated with the underproduction of popular toys and the overproduction of toys that do not match consumer demand. Retailers are also attempting to manage their inventories better, requiring Mattel to ship products closer to the time its customers expect to sell the products to consumers. These factors increase the risk that Mattel may not be able to meet demand for certain products at peak demand times, or that Mattel's own inventory levels may be adversely impacted by the need to pre-build products before orders are placed. Additionally, as retailers manage their inventories, Mattel experiences cyclical ordering patterns for products and product lines that may cause its sales to vary significantly from period to period. 15 Financial Realignment Plan During the third quarter of 2000, Mattel initiated a financial realignment plan designed to improve gross margin; selling, general and administrative expenses; operating profit; and cash flow. The financial realignment plan, together with the disposition of Learning Company, was part of management's strategic plan to focus on growing Mattel's core brands and lowering operating costs and interest expense. The plan will require a total pre-tax charge estimated at approximately $250 million, or $170 million on an after-tax basis, of which approximately $100 million represents cash expenditures and $70 million represents noncash writedowns. Total cash outlay will be funded from existing cash balances and internally generated cash flows from operations. To date, Mattel has recorded pre-tax charges totaling $164.2 million, or approximately $112 million on an after-tax basis, related to this plan. Of the total charge, $125.2 million (approximately $84 million after-tax) was recorded in 2000 and $39.0 million (approximately $28 million after-tax) was recorded in the first nine months of 2001. In accordance with generally accepted accounting principles, future pre-tax implementation costs of approximately $86 million have not been accrued as of September 30, 2001. Mattel expects that these costs will be recorded over approximately the next two years. The following are the major initiatives included in the financial realignment plan: . Reduce excess manufacturing capacity; . Terminate a variety of licensing and other contractual arrangements that do not deliver an adequate level of profitability; . Eliminate product lines that do not meet required levels of profitability; . Improve supply chain performance and economics; . Eliminate approximately 350 positions at US-based headquarters locations in El Segundo, Fisher-Price and Pleasant Company through a combination of layoffs, elimination of open requisitions, attrition and retirements; and . Close and consolidate certain international offices. In April 2001, as part of the financial realignment plan, Mattel announced the closure of one of its North American distribution and manufacturing facilities. Production from the Murray, Kentucky, facility will be consolidated into existing Mattel-owned and operated facilities in North America with the final shutdown of Murray operations expected in 2002. This action is one of the realignment measures taken to lower costs. Mattel believes this action was necessary in order to maintain a competitive cost structure in today's global marketplace. In 2000, Mattel recorded a pre-tax restructuring charge of $22.9 million as part of the initial phase of the financial realignment plan, of which approximately $18 million was not incurred as of December 31, 2000. This charge related to elimination of positions at headquarters locations in El Segundo, Fisher-Price and Pleasant Company, closure of certain international offices, and consolidation of facilities. During the second quarter of 2001, Mattel recorded a $13.0 million pre-tax restructuring charge as part of the financial realignment plan, largely related to the North American Strategy. Total worldwide headcount reduction as a result of the restructuring is approximately 16 1,700 employees, of which approximately 1,100 are related to the North American Strategy. From inception through September 30, 2001, a total of approximately $15 million has been incurred related to the termination of nearly 640 employees, of which approximately 120 were terminated during the third quarter of 2001. The components of the restructuring charges are as follows:
Balance Amounts Balance (In millions) Dec. 31, 2000 Accruals Incurred Sept. 30, 2001 --------------------------------------------------------------------------------------------------------------------- Severance and other compensation $16 $11 $(12) $15 Lease termination costs 1 2 - 3 Other 1 - (1) - --------------------------------------------------------------------------------------------------------------------- Total restructuring charge $18 $13 $(13) $18 =====================================================================================================================
Under the plan, Mattel expects to generate approximately $200 million of cumulative pre-tax cost savings over the next three years. Mattel has completed all of the activities needed in order to recognize approximately $55 million in savings targeted for 2001. However, there is no assurance that Mattel will be able to successfully implement all phases of its financial realignment plan or that it will realize the anticipated cost savings and improved cash flows. Results of Continuing Operations - Third Quarter Consolidated Results Net income from continuing operations for the third quarter of 2001 was $199.8 million or $0.46 per diluted share as compared to net income of $103.7 million or $0.24 per diluted share in the third quarter of 2000. Profitability in the third quarter of 2001 was negatively impacted by an $11.2 million pre-tax charge, approximately $8 million after-tax or $0.02 per diluted share, related to the financial realignment plan. A $110.3 million pre-tax charge related to the financial realignment plan, partially offset by a $5.0 million reversal of the 1999 restructuring charge, negatively impacted profitability in the third quarter of 2000. The combined effect resulted in a pre-tax net charge totaling $105.3 million, approximately $71 million after-tax or $0.17 per diluted share. Consumer confidence may have been impacted by the events of September 11, 2001, and therefore, may lead to a more challenging retail environment during the all important holiday season. Mattel believes that the possibility of lower sales due to a challenging retail environment, combined with the impact of a stronger US dollar, will likely be offset by the benefit of lower interest rates, and savings from cost reduction programs, such as the financial realignment plan and supply chain initiatives. 17 The following table provides a comparison of the reported results and the results excluding charges:
For the Three Months Ended Sept. 30, --------------------------------------------------------------------------- 2001 2000 ------------------------------------ -------------------------------------- Reported Results Reported Results (In millions) Results Charges Ex. Chgs Results Charges Ex. Chgs ----------------------------------------------------------------------------------------------------------------------- Net sales $1,612.8 $ - $1,612.8 $1,583.7 $ - $1,583.7 ======================================================================================================================= Gross profit $ 773.3 $ (10.2) $ 783.5 $ 666.6 $ (72.0) $ 738.6 Advertising and promotion expenses 212.9 - 212.9 225.2 3.8 221.4 Other selling and administrative expenses 230.3 - 230.3 224.7 2.1 222.6 Amortization of intangibles 12.7 - 12.7 13.3 0.5 12.8 Restructuring and other charges - - - 17.9 17.9 - Other expense (income), net 2.3 1.0 1.3 7.6 9.0 (1.4) ----------------------------------------------------------------------------------------------------------------------- Operating income 315.1 (11.2) 326.3 177.9 (105.3) 283.2 Interest expense 39.5 - 39.5 42.6 - 42.6 ----------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes $ 275.6 $ (11.2) $ 286.8 $ 135.3 $(105.3) $ 240.6 =======================================================================================================================
Net sales from continuing operations in the third quarter of 2001 increased 2% to $1.61 billion, from $1.58 billion in 2000. In local currency, net sales were up 3% compared to a year ago. Sales within the US increased 2% and accounted for 69% of consolidated sales in both the third quarter of 2001 and 2000. Sales outside the US increased 2% from the year ago quarter. Excluding the unfavorable foreign currency exchange impact, international sales increased by 5% compared to 2000. Worldwide sales in the Girls category increased 1%, or 2% in local currency, to $710.4 million. Domestic sales declined by 5% while international sales increased 14%, or 17% in local currency. The performance of Polly Pocket!(R), Diva Starz(TM) and What's Her Face!(TM) drove growth in the Girls category. Worldwide Barbie(R) sales decreased 9%, or 8% in local currency. Barbie(R) sales in the US declined 17% as compared to the year ago quarter, when sales increased 9%. The decline in US Barbie(R) sales was due to continuing inventory management by retailers, lower shipments of Holiday Celebration(TM) Barbie(R) in response to lower demand at retail, and lower sales of adult-targeted collector dolls resulting from a weakening retail climate for higher-priced collectible items. International sales for Barbie(R) increased 7%, or 9% in local currency, reflecting the benefit of early product availability and stronger alignment of worldwide sales and marketing plans. Worldwide sales in the Boys-Entertainment category grew 5%, or 6% in local currency, to $423.2 million in 2001. Domestic sales grew by 7% while international sales increased 1%, or 5% in local currency. While sales of the Hot Wheels(R) brand increased by 9%, sales in the Wheels category experienced a 3% decline due to lower shipments of the Tyco(R) Radio Control and Matchbox(R) brands. Sales increased 18% in the Entertainment category, led by the introduction of Harry Potter(TM) products. Worldwide sales in the Infant & Preschool category increased 3% in both US dollars and local currency, to $578.9 million in 2001. Domestic sales were up 7%, while international sales were down 11%, or 9% in local currency. 18 Worldwide sales of core Fisher-Price(R) products were up 8%. Strong growth in core Fisher-Price(R) and Power Wheels(R) products was partially offset by a decline in licensed character brands. In the US, sales of licensed character brands were flat versus year ago levels, reversing a trend of decline over the previous six quarters. Licensed character brand sales internationally continued to decline. Mattel believes international markets for licensed character brands tend to lag behind the US by about one year. Gross profit, as a percentage of net sales, was 47.9% in 2001 compared to 42.1% last year. Reported cost of sales for third quarter 2001 includes a $10.2 million charge, primarily related to the termination of licensing arrangements as part of the financial realignment plan. Cost of sales reported in third quarter 2000 includes a $72.0 million charge, incurred as part of the financial realignment plan, related to the termination of a variety of licenses and other contractual arrangements, and the elimination of product lines that did not deliver an adequate level of profitability. Excluding the financial realignment plan charges, gross profit, as a percentage of net sales, was 48.6% in the third quarter of 2001 compared to 46.6% in 2000. Gross profit was positively impacted by savings realized from the financial realignment plan and lower product costs achieved through the supply chain initiative, partially offset by the negative impact of foreign exchange. Advertising and promotion expense was 13.2% of net sales in third quarter 2001, compared to 14.2% last year. Excluding the $3.8 million charge taken in the third quarter of 2000 related to the termination of a contractual arrangement, advertising as a percentage of net sales was 14.0%. Advertising and promotion expense during third quarter 2001 was positively impacted by softness in media pricing. Mattel's 2001 media plan is actually stronger than last year's in terms of gross rating points. Other selling and administrative expenses of $230.3 million for the quarter represented 14.3% of net sales compared to 14.2% in 2000. Excluding the $2.1 million charge taken in the third quarter of 2000 for settlement of certain litigation matters, other selling and administrative expenses were 14.1% of net sales. During third quarter of 2001, savings realized from the financial realignment plan were offset by an incremental charge for bad debt expense of approximately $9 million, primarily related to the bankruptcy declared by a US retailer during the quarter. Other expense, net in 2001 includes a $1.0 million charge for asset writedowns associated with implementing the North American Strategy, while other expense, net in 2000 includes a $9.0 million charge for the writeoff of certain noncurrent assets. Excluding these charges, other expense (income), net decreased from income of $1.4 million in 2000 to expense of $1.3 million in 2001. Interest expense was $39.5 million in 2001 compared to $42.6 million in 2000. This year's interest expense includes a significant benefit from lower short-term interest rates. Mattel's third quarter tax rate, excluding charges, was 27.6%, consistent with the expected rate for the year. 19 Business Segment Results Mattel's reportable segments are separately managed business units and are divided on a geographic basis between domestic and international. The domestic segment is further divided into US Girls, US Boys-Entertainment, and US Infant & Preschool. The International segment sells products in all toy categories. Mattel's segments were revised in January 2001 to conform to the current management structure. Specifically, the results of Pleasant Company, which had been reported as part of Other, are now being reported as part of US Girls, which is consistent with management responsibility for this business. Additionally, Mattel's toy manufacturing unit is now being managed as a cost center instead of as a profit center; therefore, toy manufacturing is no longer being reported as a separate segment. Lastly, certain overhead costs incurred at the headquarters' level in El Segundo, including facilities, information technology, and other administration support costs, are now being allocated to the US Girls and US Boys-Entertainment segments, to more accurately reflect the costs associated with operating these businesses. These types of overhead costs were already being reported as part of the US Infant & Preschool and International segments since these businesses maintain their own headquarters locations. US Girls segment sales decreased by 5% in third quarter 2001 compared to third quarter 2000. The decline was largely due to a decrease in Barbie(R) sales, partially offset by increased sales of Polly Pocket!(R), Diva Starz(TM) and What's Her Face!(TM) . Barbie(R) sales declined by 17%, as compared to the year ago quarter when Barbie(R) experienced a 9% increase in sales. The decline in Barbie(R) sales was due to continuing inventory management by retailers, lower shipments of Holiday Celebration(TM) Barbie(R) in response to weakening demand at retail, and lower sales of adult-targeted collector dolls resulting from a weakening retail climate for higher-priced collectible items. US Boys-Entertainment segment sales increased 7% compared to 2000. The US Entertainment business experienced double-digit growth, largely due to the introduction of Harry Potter(TM) products, while the US Wheels business remained flat with last year. The US Infant & Preschool segment sales increased 7% due to increased sales of core Fisher-Price(R) and Power Wheels(R) products. Sales of licensed character brand products were flat versus year ago levels, reversing a trend of decline over the previous six quarters. International segment sales increased by 2% compared to last year. Excluding the unfavorable foreign exchange impact, sales grew by 5%, largely due to growth in Barbie(R), Polly Pocket!(R), core Fisher-Price(R) and Hot Wheels(R) products combined with the introduction of Harry Potter(TM) and Diva Starz(TM) products. Operating profit in the US Girls segment increased by 1% despite the sales decline, largely due to improved margins and softness in media pricing. Operating profit in the US Boys-Entertainment segment improved by 43% due to increased sales, improved margins, reduced selling and administrative expenses, and softness in media pricing. Operating profit in the US Infant & Preschool segment improved 20%, largely due to increased volume and improved margin. The International segment operating profit increased 14% due to increased volume and lower product costs, partially offset by unfavorable foreign exchange and lower operating profit in certain Latin American countries. 20 Results of Continuing Operations - First Nine Months Consolidated Results Net income from continuing operations for the first nine months of 2001 was $172.9 million or $0.40 per diluted share as compared to net income of $65.1 million or $0.15 per diluted share in the first nine months of 2000. Profitability in the first nine months of 2001 was negatively impacted by $39.0 million of charges related to the financial realignment plan and a $5.5 million charge related to a pre-tax loss on derivative instruments. The combined effect of these items resulted in pre-tax charges totaling $44.5 million, approximately $33 million after-tax or $0.07 per diluted share. Profitability in the first nine months of 2000 was negatively impacted by a $110.3 million pre-tax charge related to the financial realignment plan and a $53.1 million pre-tax charge related to the departure of certain senior executives, partially offset by a $7.0 million pre-tax credit related to adjustments to the 1999 restructuring and other charges. The combined effect of these items resulted in net pre-tax charges totaling $156.4 million, approximately $108 million after-tax or $0.25 per diluted share. The following table provides a comparison of the reported results and the results excluding charges:
For the Nine Months Ended Sept. 30, --------------------------------------------------------------------------- 2001 2000 ------------------------------------ -------------------------------------- Reported Results Reported Results (In millions) Results Charges Ex. Chgs Results Charges Ex. Chgs ----------------------------------------------------------------------------------------------------------------------- Net sales $3,199.0 $ - $3,199.0 $3,094.8 $ - $3,094.8 ======================================================================================================================= Gross profit $1,479.4 $ (24.0) $1,503.4 $1,344.9 $ (72.0) $1,416.9 Advertising and promotion expenses 413.2 0.3 412.9 415.1 3.8 411.3 Other selling and administrative expenses 649.9 0.1 649.8 697.6 55.2 642.4 Amortization of intangibles 38.2 - 38.2 39.2 0.5 38.7 Restructuring and other charges 13.0 13.0 - 15.9 15.9 - Other expense (income), net 11.5 7.1 4.4 (7.8) 9.0 (16.8) ----------------------------------------------------------------------------------------------------------------------- Operating income 353.6 (44.5) 398.1 184.9 (156.4) 341.3 Interest expense 114.0 - 114.0 102.9 - 102.9 ----------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes $ 239.6 $ (44.5) $ 284.1 $ 82.0 $ (156.4) $ 238.4 =======================================================================================================================
Net sales from continuing operations in the first nine months of 2001 increased 3% from last year to $3.20 billion. In local currency, net sales were up 5% compared to a year ago. Sales within the US increased 2% and accounted for 69% of consolidated sales in the first nine months of 2001 compared to 70% in 2000. Sales outside the US increased 7% from a year ago. Excluding the unfavorable foreign currency exchange impact, international sales increased by 11% compared to 2000. Worldwide sales in the Girls category, which now includes American Girl(R), increased 4%, or 5% in local currency, to $1.43 billion. Domestic sales declined by 3%, while international sales increased 18%, or 22% in local currency. The performance of Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R) drove growth in the Girls category. Worldwide Barbie(R) sales decreased 4%, or 3% in local currency. Barbie(R) sales in the US declined 13% 21 as compared to the strong year ago period, when sales increased 13% year over year. The decline in US Barbie(R) sales was due to continuing inventory management by retailers, lower shipments of Holiday Celebration(TM) Barbie(R) in response to lower demand at retail, and lower sales of adult-targeted collector dolls resulting from a weakening retail climate for higher-priced collectible items. International sales for Barbie(R) were up 14%, or 18% in local currency, reflecting relatively softer comparisons in the first nine months of 2000, the benefit of early product availability, and stronger alignment of worldwide sales and marketing plans. Worldwide sales in the Boys-Entertainment category grew 7%, or 8% in local currency, to $838.6 million in 2001. Domestic sales grew by 8% while international sales increased 5%, or 9% in local currency. The worldwide Wheels business increased 2%, driven by double-digit growth in Hot Wheels(R), partially offset by a decline in Matchbox(R) and Tyco(R) Radio Control. The Entertainment business had double-digit growth in sales with strength in Harry Potter(TM) and Max Steel(TM) products. Worldwide sales in the Infant & Preschool category increased 2%, or 3% in local currency, to $1.14 billion in 2001. Domestic sales were up 5% and international sales were down 6%, or down 3% in local currency. Worldwide sales of core Fisher-Price(R) products were up 8%, including double-digit growth internationally in local currency. The growth in core Fisher-Price(R) and Power Wheels(R) products was partially offset by weakness in licensed character brands. Gross profit, as a percentage of net sales, was 46.2% in 2001, compared to 43.5% last year. Reported cost of sales for 2001 includes a $24.0 million charge, largely related to accelerated depreciation resulting from the planned closure of the Murray, Kentucky plant and termination of a licensing arrangement as part of the financial realignment plan. Cost of sales reported in 2000 includes a $72.0 million charge, incurred as part of the financial realignment plan, related to the termination of a variety of licenses and other contractual arrangements, and elimination of product lines that did not deliver an adequate level of profitability. Excluding the financial realignment plan charges, gross profit, as a percentage of net sales, was 47.0% in the first nine months of 2001 compared to 45.8% in 2000. Gross profit was positively impacted by savings realized from the financial realignment plan and lower product costs achieved through the supply chain initiative, partially offset by the negative impact of foreign exchange. Advertising and promotion expense was 12.9% of net sales in 2001, compared to 13.4% last year. Reported advertising and promotion expense for 2001 and 2000 include $0.3 million and $3.8 million of charges, respectively, related to exiting certain product lines. Excluding these charges, advertising and promotion expense declined from 13.3% in 2000 to 12.9%, largely due to softness in media pricing. Mattel's 2001 media plan is actually stronger than last year's in terms of gross rating points. In the first nine months of 2000, other selling and administrative expenses included a $53.1 million charge related to the departure of certain senior executives and a $2.1 million charge for settlement of certain litigation matters. Excluding these charges, other selling and administrative expenses declined from 20.8% of net sales in 2000 to 20.3% in 2001. Savings realized from the financial realignment plan were offset by bad debt expense of approximately $9 million, primarily related to the bankruptcy 22 declared by a US retailer during the third quarter of 2001. Other expense, net in 2001 includes a $5.5 million loss on derivative instruments and a $1.6 million expense for asset writedowns and other costs associated with implementing the North American Strategy. Other expense, net in 2000 includes a $9.0 million charge for the writeoff of certain noncurrent assets. Excluding these charges, other expense (income), net decreased from income of $16.8 million in 2000 to expense of $4.4 million in 2001. In 2000, other income, net included favorable foreign exchange and investment gains. Interest expense was $114.0 million in 2001 compared to $102.9 million last year. The increase is due to the allocation in the first nine months of last year of $31.0 million in interest to discontinued operations. In the first nine months of 2001, all interest expense was allocated to continuing operations. Partially offsetting the increase is a benefit in 2001 from lower short-term interest rates and lower average short-term seasonal borrowings. Interest expense for full year 2001 is expected to be lower than last year's $189 million of total interest expense incurred for continuing and discontinued operations combined. However, management also believes that the impact of a stronger US dollar versus year ago levels and the possibility of lower sales due to the challenging retail sales environment will likely offset any interest rate benefit to the overall consolidated statement of operations. Mattel's first nine month's tax rate, excluding charges, was 27.6%, consistent with the expected rate for the year. Business Segment Results US Girls segment sales decreased by 3% in 2001 compared to 2000. A 13% decline in Barbie(R) sales was partially offset by increased sales of American Girl(R), Polly Pocket!(R), Diva Starz(TM) and What's Her Face!(TM) . The decrease in Barbie(R) sales compared to first nine months of 2000 was primarily due to changes in retailer buying patterns and stronger comparable results a year ago. US Boys-Entertainment segment sales increased 8% compared to 2000. The US Wheels business increased 3% due to growth in Hot Wheels(R). The US Entertainment business experienced double-digit growth, largely due to the introduction of Harry Potter(TM) products. US Infant & Preschool segment sales increased 5%, largely due to increased sales of core Fisher-Price(R) and Power Wheels(R) products, partially offset by a decline in sales of licensed character brand products. International segment sales increased by 7% compared to last year. Excluding the unfavorable foreign exchange impact, sales grew by 11% due to double-digit growth in Barbie(R), Polly Pocket!(R), core Fisher-Price(R) and Hot Wheels(R) products combined with the introduction of Diva Starz(TM) and Harry Potter(TM) products. Operating profit in the US Girls segment increased by 5% despite the sales decline, largely due to improved margins, reduced selling and administrative expenses, and softness in media pricing. Operating profit in the US Boys-Entertainment segment more than doubled, due to increased sales, improved margins, reduced selling and administrative expenses and softness in media pricing. Operating profit in the US Infant & Preschool segment increased by 14% as increased sales were partially offset by higher selling and administrative expenses to support certain new product lines. International segment operating profit improved by 9% as higher volume was partially offset by lower operating profit in certain Latin American countries. 23 Financial Position Mattel's cash and short-term investments decreased $30.1 million to $65.7 million at September 30, 2001 compared to $95.8 million at September 30, 2000. Compared to year end 2000, cash and short-term investments decreased $166.7 million, primarily due to funding of continuing operations, partially offset by short-term borrowings. Accounts receivable, net increased $135.1 million compared to third quarter 2000 as a result of a decrease in the level of receivables that were sold under Mattel's unsecured committed revolving credit agreement. Inventory balances increased $84.0 million from third quarter 2000, primarily as a result of improved availability of products during 2001 compared to year ago levels, when supplies were affected by the electronic chip shortage, and 2001 pre-build initiatives to prepare for the closing of the Murray, Kentucky manufacturing facility as part of the financial realignment plan. Since year end 2000, inventories increased $250.0 million as a result of seasonal inventory buildup to support sales later in the year and the pre-build initiative related to the Murray closure. Prepaid expenses and other current assets decreased $69.0 million compared to third quarter 2000, largely due to the disposal of marketable securities received in connection with the sale of CyberPatrol and lower prepaid income taxes. Other assets increased $186.9 million from the third quarter of 2000, principally due to increased noncurrent deferred tax assets resulting from operating losses. Net investment in discontinued operations decreased $24.9 million from third quarter 2000, due to the closure of Mattel Media. Short-term borrowings increased $508.7 million compared to year end 2000 to support seasonal working capital financing needs. Current portion of long-term debt increased $242.4 million over the 2000 quarter end and $212.2 million over year end 2000, primarily due to the reclassification of 200 million of Euro Notes and medium-term notes maturing during the next twelve months from long-term debt. Accrued liabilities decreased $246.1 million compared to the 2000 third quarter, primarily due to the repayment of $201.0 million of senior notes in November 2000 in connection with the disposition of Learning Company. Income taxes payable increased $149.2 million compared to 2000 quarter end due to cumulative income from continuing operations during the last twelve months. A summary of Mattel's capitalization is as follows:
(In millions, except percentage information) Sept. 30, 2001 Sept. 30, 2000 Dec. 31, 2000 ---------------------------------------------------------------------------------------------------------------------- Medium-term notes $ 480.0 17% $ 540.5 19% $ 510.0 18% Senior notes 500.0 18 690.7 25 690.7 25 Other long-term debt obligations 41.1 1 41.9 2 41.7 1 ---------------------------------------------------------------------------------------------------------------------- Total long-term debt 1,021.1 36 1,273.1 46 1,242.4 44 Other long-term liabilities 171.4 6 167.2 6 165.5 6 Stockholders' equity 1,610.2 58 1,308.1 48 1,403.1 50 ---------------------------------------------------------------------------------------------------------------------- $2,802.7 100% $2,748.4 100% $2,811.0 100% ======================================================================================================================
Total long-term debt decreased by $252.0 million compared to third quarter 2000 due to the reclassification of 200 million of Euro Notes and $60.5 million of medium-term notes maturing in the next twelve months to current portion of long-term debt. Mattel expects to satisfy its future long-term capital needs through the retention of corporate earnings and the issuance of long-term debt instruments. As of September 30, 2001, Mattel has up to $400.0 million of debt and equity securities available for issuance under its current shelf registration statement. 24 Stockholders' equity increased $302.1 million since September 30, 2000, primarily as a result of income from continuing operations and cash received from exercise of employee stock options, partially offset by cumulative losses from discontinued operations and the unfavorable effect of foreign currency translation. Liquidity Cash flows used for continuing operations increased $192.9 million compared to third quarter 2000, largely due to a decrease in the level of accounts receivable sold under Mattel's unsecured committed revolving credit agreement. During the first nine months of 2001, Mattel invested cash flows totaling $131.2 million for additions to tooling in support of new products and to expand the capacity of existing North American manufacturing facilities in anticipation of the closure of the Murray, Kentucky facility. Cash flows from financing activities increased $9.5 million. During 2001, Mattel expects cash flows to increase due to cash generated by operations, the change in dividend policy and the disposition of Learning Company since Mattel is no longer required to fund this business. Mattel currently intends to use the cash savings generated by these actions to reduce debt. Seasonal Financing Mattel'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 level due to increased sales volume, and when inventories are at their highest in anticipation of expected second half sales volume. Mattel expects to finance its seasonal working capital requirements for the next twelve months by using existing and internally generated cash, issuing commercial paper, selling certain trade receivables and using various short-term bank lines of credit. In addition, Mattel avails itself of individual short-term foreign credit lines with a number of banks, which will be used as needed to finance seasonal working capital requirements of certain foreign subsidiaries. Mattel believes the amounts available under its unsecured committed revolving credit facilities, its uncommitted money market facility and its foreign credit lines will be adequate to meet its seasonal financing requirements. Risk Management Foreign Currency Mattel's results of operations and cash flows may be impacted by exchange rate fluctuations. Mattel seeks to mitigate its exposure to market risk by monitoring its currency exchange exposure for the year and partially or fully hedging such exposure using foreign currency forward exchange and option contracts primarily to hedge its purchase and sale of inventory, and other intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. In addition, Mattel manages its exposure through the selection of currencies used for international borrowings and intercompany invoicing. Mattel's results of operations can also be affected by the translation of foreign revenues and earnings into US dollars. Mattel does not trade in financial instruments for speculative purposes. Mattel has also entered into a cross currency interest rate swap to convert the interest and principal amount from Euros to US dollars on its 200 million Euro Notes due 2002. 25 PART II -- OTHER INFORMATION Item 1. Legal Proceedings Litigation Related to Learning Company Following Mattel's announcement in October 1999 of the expected results of its Learning Company division for the third quarter of 1999, several of Mattel's stockholders filed purported class action complaints naming Mattel and certain of its present and former officers and directors as defendants. The complaints generally allege, among other things, that the defendants made false or misleading statements, in the joint proxy statement for the merger of Mattel and Learning Company and elsewhere, that artificially inflated the price of Mattel's common stock. In March 2000, these shareholder complaints were consolidated into two lead cases: Thurber v. Mattel, Inc. et al. (containing claims under (S)10(b) of the ------------------------------ 1934 Securities Exchange Act ("Act")) and Dusek v. Mattel, Inc. et al. ---------------------------- (containing claims under (S)14(a) of the Act). Mattel and the other defendants filed motions to dismiss both lawsuits for failure to state a claim. In January 2001, the Court granted defendants' motions to dismiss both Thurber and Dusek, ------- ------ and gave plaintiffs leave to amend. Plaintiffs filed amended consolidated complaints in March 2001 in both actions. In June 2001, Mattel and the other defendants filed motions to dismiss the amended consolidated complaints. The Court has not yet ruled on those motions. Both Thurber and Dusek are currently ------- ----- pending in the United States District Court for the Central District of California. Other purported class action litigation was brought in the United States District Court for the Central District of California against Mattel as successor to Learning Company and the former directors of Learning Company on behalf of former stockholders of Broderbund Software, Inc. who acquired shares of Learning Company in exchange for their Broderbund common stock in connection with the Learning Company-Broderbund merger on August 31, 1998. The consolidated complaint in In re Broderbund generally alleges that Learning Company misstated ---------------- its financial results prior to the time it was acquired by Mattel. Mattel and the other defendants filed a motion to dismiss the complaint in In re ----- Broderbund, and in late May 2001, the Court granted the defendants' motion and ---------- dismissed the case. The In re Broderbund plaintiffs have appealed the Court's ---------------- ruling to the Ninth Circuit Court of Appeals. Several stockholders have filed derivative complaints on behalf and for the benefit of Mattel, alleging, among other things, that Mattel's directors breached their fiduciary duties, wasted corporate assets, and grossly mismanaged Mattel in connection with Mattel's acquisition of Learning Company and its approval of severance packages to certain former executives. All of these derivative actions, one of which was filed in the Court of Chancery in Delaware and the remainder in Los Angeles Superior Court in California, have been stayed pending the outcome of motions to dismiss in the federal securities actions. Mattel believes the purported class actions and derivative suits are without merit and intends to defend them vigorously. 26 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 3.0 By-laws of Mattel, as amended 11.0 Computation of Income (Loss) per Common and Common Equivalent Share 12.0 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 99.0 Second Amendment to Receivables Purchase Agreement dated as of September 5, 2001 99.1 Amendment No. 5 to Amended and Restated Mattel 1996 Stock Option Plan (b) Reports on Form 8-K ------------------- Mattel, Inc. filed the following Current Report on Form 8-K during the quarterly period ended September 30, 2001:
Date of Report Items Reported Financial Statements Filed -------------------------------- ------------------------- ------------------------------------ July 24, 2001 5, 7 None
27 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MATTEL, INC. --------------------------------------- (Registrant) Date: As of October 26, 2001 By: /s/ Douglas E. Kerner ---------------------- --------------------------------------- Douglas E. Kerner Senior Vice President and Corporate Controller (Duly authorized officer and chief accounting officer) 28 EX-3.0 3 dex30.txt BY-LAWS OF MATTEL, AS AMENDED EXHIBIT 3.0 MATTEL, INC. BYLAWS ARTICLE I - STOCKHOLDERS Section 1. Annual Meeting. -------------------------- An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 2. Special Meetings. ---------------------------- Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the Board of Directors or the Chief Executive Officer and shall be held at such place, on such date, and at such time as they or he shall fix. Section 3. Notice of Meetings. ------------------------------ Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held to each stockholder entitled to vote at such meeting, except as otherwise provided herein, in the Restated Certificate of Incorporation or required by law. When a meeting is adjourned to another place, date, or time, written notice need not be given of the adjourned meeting if the place, date, and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. ------------------ At any meeting of the stockholders, the holders of a majority of the voting power of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. 1 If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of the stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 5. Organization. ------------------------ Such person as the Board of Directors may have designated or, in the absence of such a person, the highest ranking officer of the corporation who is present shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 6. Conduct of Business. ------------------------------- The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order. Section 7. Proxies and Voting. ------------------------------ At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy in accordance with the procedure established for the meeting. Each holder of common stock shall have one vote for every share of common stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law. As provided by the Certificate of Incorporation, at all elections of directors each stockholder who is entitled to vote shall be entitled to as many votes as shall equal the number of votes which (except for the provisions as to cumulative voting contained in the Certificate of Incorporation) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. All voting in person at the meeting, except for the election of directors and where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. 2 All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast. Section 8. Stock List. ---------------------- A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 9. Business Brought Before the Meeting. ----------------------------------------------- At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting or any adjournment thereof (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 9. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the corporation not later than the close of business on the 90th day nor earlier than the 120th day prior to the anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. ("Public announcement" means disclosure in a press release, national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended). A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation's capital stock that are beneficially owned by such stockholder, (iv) any material interest of such stockholder in such business, and (v) if the stockholder intends to solicit proxies in support of such stockholder's proposal, a representation to that effect; provided, -------- 3 however, that compliance by such stockholder with the notice provisions and ------- other requirements in this Section 9 shall not create a duty of the corporation to include such stockholder's business or proposal in the corporation's proxy statement or proxy, and notwithstanding such compliance the corporation shall retain such discretion as it has to omit such business or proposal from such proxy statement or proxy or both. Notwithstanding anything in the Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting (i) except in accordance with the provisions of this Section 9 or (ii) if the stockholder solicits proxies in support of such stockholder's proposal, without such stockholder having made the representation required by clause (v) of the preceding sentence. The officer of the corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting or any adjournment thereof in accordance with the provisions of this Section 9 and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. Section 10. Nomination for Election to Board. --------------------------------------------- Only persons who are properly nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders or any adjournment thereof (i) by or at the direction of the Board of Directors (ii) by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely and complete notice in writing to the Secretary of the corporation. For elections at an annual meeting, to be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the corporation not later than the close of business on the 90th day nor earlier than the 120th day prior to the anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation. In the event the corporation calls a special meeting of the stockholders for the purpose of electing one or more directors to the Board of Directors, a stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of an annual or special meeting commence a new time period for the giving of a stockholder's notice as described above. ("Public announcement" is defined in Section 9 herein.) Such stockholder's 4 notice shall be complete provided it sets forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class and number of shares of capital stock of the corporation which are owned directly or beneficially by the person, (d) a statement as to the person's citizenship, and (e) such person's written consent to serve as a director if elected; (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the corporation's books, of such stockholder and (b) the class and number of shares of the corporation's stock which are owned by such stockholder, and (iii) if the stockholder intends to solicit proxies in support of such stockholder's nominee(s), a representation to that effect; provided, however, that compliance -------- ------- by a stockholder with the notice provisions and other requirements in this Section 10 shall not create a duty of the corporation to include the stockholder's nominee in the corporation's proxy statement or proxy if the stockholder's nominee is not nominated by the Board of Directors, and the corporation shall retain any discretion it has to omit the nominee from the corporation's proxy statement and proxy. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the provisions of this Section 10. The officer of the corporation or other person presiding at the meeting shall, if the facts so warrant, determine and declare to the meeting that a nomination made at the meeting or any adjournment thereof was not made in accordance with the provisions of this Section 10, with law or rules applicable to the meeting, or if the stockholder solicits proxies in support of such stockholder's nominee(s) without such stockholder having made the representation required by clause (iii) of this Section 10, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Section 11. Inspectors of Written Consent. ------------------------------------------ In the event of the delivery, in the manner provided by ARTICLE V, Section 3(b), to the corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the corporation shall engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with ARTICLE V, Section 3(b) represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). 5 Section 12. Effectiveness of Written Consent. -------------------------------------------- Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated written consent was received in accordance with ARTICLE V, Section 3(b), a written consent or consents signed by a sufficient number of holders to take such action are delivered to the corporation in the manner prescribed in ARTICLE V, Section 3(b). ARTICLE II - BOARD OF DIRECTORS Section 1. Number and Term of Office ------------------------------------- The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Each director shall hold office until the annual meeting of stockholders next succeeding his election and until his successor is elected and qualified, except as otherwise provided herein or required by law. The Chairman of the Board of Directors, if there be one, shall be a director and shall serve as Chairman of the Board of Directors at the pleasure of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these Bylaws or by the Board of Directors. If there shall be no Chairman of the Board of Directors, the Board may designate a director to act in place of a Chairman of the Board of Directors for any purpose. Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are elected and qualified. Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the board which are being eliminated by the decrease. Section 2. Vacancies. --------------------- If the office of any director becomes vacant by reason of death, resignation, disqualification, removal or other cause, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term and until his successor is elected and qualified. Section 3. Regular Meetings. ---------------------------- Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of 6 Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. ---------------------------- Special meetings of the Board of Directors may be called by one-third of the directors then in office or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he shall fix. Notice of the place, date and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not less than three days before the meeting or by telegraphing, sending by facsimile transmission or by electronic mail the same not less than eighteen hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. ------------------ At any meeting of the Board of Directors, one-third of the total number of the whole board, but not less than two, shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Conduct of Business. ------------------------------- At any meeting of the Board of Directors, business shall be transacted in such order and manner as the board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Section 7. Powers. ------------------ The Board of Directors may, except as otherwise required by law, exercise all such power and do all such acts and things as may be exercised or done by the corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any officer of the corporation with or without cause, from time to time to devolve the powers and duties of any officer upon any other person for the time being; 7 (5) To confer upon any officer of the corporation the power to appoint, remove and suspend subordinate officers and agents; (6) To adopt from time to time such bonus or other compensation plans for directors, officers and agents of the corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers and agents of the corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the corporation's business and affairs. Section 8. Compensation of Directors. ------------------------------------ Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the directors. Section 9. Action without Meeting. --------------------------------- Any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting if all members of the Board or Committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or Committee. ARTICLE III - COMMITTEES Section 1. Committees of the Board of Directors. ----------------------------------------------- The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, including an Executive/Finance Committee, with the powers and duties it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect the director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Committees other than the Executive/Finance Committee may have only one member. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. 8 Section 2. Executive/Finance Committee. -------------------------------------- If the Board of Directors shall designate an Executive/Finance Committee, said Committee shall have the following powers: During the intervals between meetings of the Board of Directors, that Committee shall have all of the powers and duties of the Board of Directors, except with respect to matters delegated to another committee and except as shall have been otherwise provided by the Board of Directors. All action taken by the Executive/Finance Committee since the last meeting of the Board of Directors shall be reported to the Board at its next meeting. During the intervals between meetings of the Executive/Finance Committee, the chairman thereof shall have such of the powers and duties of such Committee as shall have been conferred upon him by the Board of Directors or the Committee. Section 3. Conduct of Business. ------------------------------ Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the members, but not less than two, shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Section 4. Emergency Management Committee. ----------------------------------------- If as a result of a catastrophe or other emergency condition a quorum of any committee of the Board of Directors having power to act in the premises cannot readily be convened and a quorum of the Board of Directors cannot readily be convened, then all the powers and duties of the Board of Directors shall automatically vest and continue, until a quorum of the Board of Directors can be convened, in the Emergency Management Committee, which shall consist of all readily available members of the Board of Directors and two of whose members shall constitute a quorum. The Emergency Management Committee shall call a meeting of the Board of Directors as soon as circumstances permit for the purpose of filling any vacancies on the Board of Directors and its committees and taking such other action as may be appropriate. ARTICLE IV - OFFICERS Section 1. Generally. -------------------- The officers shall consist of a Chief Executive Officer, a President, one or more Vice Presidents (who may at the pleasure of the Board of Directors be designated as Senior Vice Presidents, Executive Vice Presidents, Vice Presidents in charge of a particular function such as Vice President-Administration, or merely Vice President), a Secretary, a Treasurer, a Controller, 9 and such assistants to such officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold his office at the pleasure of the Board of Directors and until his successor is elected and qualified or until his earlier resignation or removal. Any number of offices may be held by the same person. The Board of Directors may appoint such other officers as the business of the corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors or the Chief Executive Officer may from time to time specify. Section 2. Chief Executive Officer. ---------------------------------- Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the Chief Executive Officer of the corporation shall have the responsibility for the general management and control of the affairs and business of the corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him by the Board of Directors. The Chief Executive Officer shall have power to sign all stock certificates, contracts and other instruments of the corporation which are authorized. He shall have general supervision and direction of all of the other officers and agents of the corporation. Section 3. President. -------------------- The President shall have such duties and powers as may from time to time be delegated to him by the Board of Directors or by the Chief Executive Officer. In the absence or disability of the Chief Executive Officer, or during the period of a vacancy in that office, he shall act as the Chief Executive Officer of the corporation and shall have the duties and powers such office. Section 4. Vice Presidents. -------------------------- Each of the Vice Presidents shall have such duties and powers as may from time to time be delegated to him by the Board of Directors, by the Chief Executive Officer, or by the President. In the absence or disability of the President, the Vice President designated by: (a) the Board of Directors, or if no such designation is made, then by (b) the Chief Executive Officer, or if no such designation is made, then by (c) the President shall have the duties and powers of the President. 10 Section 5. The Treasurer. ------------------------- The Treasurer shall have the custody of all monies and securities of the corporation and shall keep regular books of account. He shall make such disbursement of the funds of the corporation as are proper and shall render from time to time an account of all such transactions and of the financial condition of the corporation. He shall have such other duties and powers as are commonly incident to this office or are delegated to him by the Board of Directors, by the Chief Executive Officer, or by the President. Section 6. The Secretary. ------------------------- The Board of Directors shall appoint a Secretary or, at its discretion, more than one Secretary, each of whom shall have such duties and other powers are commonly incident to this office or are delegated to him or her by the Board of Directors, by the Chief Executive Officer, or by the President. A Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. A Secretary shall have charge of the corporate books. Section 7. Delegation of Authority. ---------------------------------- The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agents, notwithstanding any provision hereof. Section 8. Removal. ------------------- Any officer of the corporation may be removed at any time, with or without cause, by the Board of Directors. Section 9. Action with Respect to Securities of Corporation. ------------------------------------------------------------- Unless otherwise directed by the Board of Directors, the Chief Executive Officer and the President, and each of them, shall have power to vote and otherwise act on behalf of the corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this corporation may hold securities and otherwise to exercise any and all rights and powers which this corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V - STOCK Section 1. Certificates of Stock. -------------------------------- Each stockholder shall be entitled to a certificate signed by, or in the name of the corporation by, the Chief Executive Officer, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the 11 number of shares owned by him. Signatures required on such certificates may be manually signed by the transfer agent, registrar or officer, or such signatures may be facsimile. Section 2. Transfer of Stock. ---------------------------- Transfers of stock shall be made only upon the transfer books of the corporation kept at an office of the corporation or by transfer agents designated to transfer shares of the stock of the corporation. Except where a certificate is issued in accordance with Section 4 of ARTICLE V of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Section 3. Record Dates. ------------------------ (a) The Board of Directors may fix a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described (except as otherwise set forth in paragraph (b) of this Section), as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. 12 Section 4. Lost, Stolen or Destroyed Certificates. -------------------------------------------------- In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. ----------------------- The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI - INDEMNIFICATION Section 1. Right to Indemnification. ------------------------------------ Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or person of whom he or she is the legal representative, is or was a director or officer of the corporation, including when any such director or officer is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, -------- ------- that, except as provided in Section 2 of this ARTICLE VI, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the corporation within 20 days after the receipt by the corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that, if the Delaware -------- ------- General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which 13 service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. Section 2. Right of Claimant to Bring Suit. ------------------------------------------- If a claim under Section 1 of this ARTICLE VI, is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 3. Non-Exclusivity of Rights. ------------------------------------- The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this ARTICLE VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or otherwise. No repeal or modification of this ARTICLE VI shall in any way diminish or adversely affect the rights of any director, officer, employee or agent of the corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification. Section 4. Insurance. --------------------- The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. To the extent that the corporation maintains any policy or policies providing such insurance, each such director or officer, and each such 14 agent or employee to which rights to indemnification have been granted as provided in Section 7 of this ARTICLE VI, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. Section 5. Procedures for Indemnification. ------------------------------------------ To obtain indemnification under this ARTICLE VI, a claimant shall submit to the corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 5, a determination, if required by applicable law, with respect to the claimant's entitlement thereto shall be made as follows: (1) if requested by the claimant, by independent legal counsel (as hereinafter defined), or (2) if no request is made by the claimant for a determination by independent legal counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by independent legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the stockholders of the corporation. In the event the determination of entitlement to indemnification is to be made by independent legal counsel at the request of the claimant, the independent legal counsel shall be selected by the Board of Directors unless there shall have occurred within two years prior to the date of the commencement of the action, suit or proceeding for which indemnification is claimed a Change of Control (as hereinafter defined), in which case the independent legal counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination. Section 6. Effect and Validity. ------------------------------- If a determination shall have been made pursuant to ARTICLE VI, Section 5 that the claimant is entitled to indemnification, the corporation shall be bound by such determination in any judicial proceeding commenced pursuant to ARTICLE VI, Section 2. The corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to ARTICLE VI, Section 2 that the procedures and presumptions of this ARTICLE VI are not valid, binding and enforceable and shall stipulate in such proceeding that the corporation is bound by all the provisions of this ARTICLE VI. If any provision or provisions of this ARTICLE VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this ARTICLE VI (including, without limitation, each portion of any paragraph of this ARTICLE VI containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this 15 ARTICLE VI (including, without limitation, each such portion of any paragraph of this ARTICLE VI containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 7. Employees and Agents. -------------------------------- The corporation may grant rights to indemnification, and rights to be paid by the corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the corporation, including when any such person is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the corporation, to the fullest extent of the provision of this ARTICLE VI with respect to the indemnification and advancement of expenses of directors and officers of the corporation. Section 8. Definitions. ----------------------- For purposes of this ARTICLE VI: (a) "Change of Control" means (i) The acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the corporation entitled to vote generally in the election of directors (the "Outstanding voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the corporation, (ii) any acquisition by the corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the corporation or any corporation controlled by the corporation or (iv) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (a)(iii) of this Section 7; or (ii) Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the corporation's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or 16 (iii) Consummation by the corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the corporation or the acquisition of assets of another entity (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individual and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the corporation or all or substantially all of the corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or (iv) Approval by the stockholders of the corporation of a complete liquidation or dissolution of the corporation. (b) "Disinterested Director" means a director of the corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant. (c) "independent legal counsel" means a law firm, a member of a law firm, or an independent practitioner that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the corporation or the claimant in an action to determine the claimant's rights under this ARTICLE VI." ARTICLE VII - NOTICES Section 1. Notices. ------------------- Whenever notice is required to be given to any stockholder, director, officer, or agent, such requirement shall not be construed to mean personal notice. Such notice may in every instance be effectively given by depositing a writing in a post office or letter box, in a postpaid, sealed wrapper, or by dispatching a prepaid telegram, addressed to such stockholder, director, officer, or agent at his or her address as the same appears on the books of the 17 corporation. The time when such notice is dispatched shall be the time of the giving of the notice. Section 2. Waivers. ------------------- A written waiver of any notice, signed by a stockholder, director, officer or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VIII - MISCELLANEOUS Section 1. Facsimile Signatures. -------------------------------- In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or the Executive Committee. Section 2. Corporate Seal. -------------------------- The Board of Directors shall provide a suitable seal, containing the name of the corporation, which seal shall be in charge of the Secretary. If and when so directed by the Board of Directors or by the Executive Committee, duplicates of the seal may be kept and used by the Treasurer or by any Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports and Records. ---------------------------------------------------- Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. Section 4. Fiscal Year. ----------------------- The fiscal year of the corporation shall terminate at the end of business on December 31 in each year, and the following year shall begin on the next day thereafter. Section 5. Time Periods. ------------------------ In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to any event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. 18 Section 6. Independent Accountants. ----------------------------------- The Board of Directors shall appoint on an annual basis such firm of independent public accountants as it shall deem appropriate to examine the Company's financial books and records on at least an annual basis. The appointment of said independent accountants shall, at the next succeeding annual meeting of stockholders be presented to the stockholders of the Company for ratification. Should the stockholders fail to ratify the appointment by the Board of Directors of said independent public accountants, the Board of Directors shall take the matter under consideration and the vote of the stockholders in that regard shall be deemed advisory in nature. Section 7. Gender. ------------------ Any reference to the masculine gender in these Bylaws shall be construed to mean the feminine gender, as the situation may demand. ARTICLE IX - AMENDMENTS Section 1. Amendments. ---------------------- These Bylaws may be amended or repealed by the Board of Directors at any meeting or by the stockholders at any meeting. 19 EX-11.0 4 dex110.txt COMPUTATION OF INCOME (LOSS) PER COMMON SHARE MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 1 of 2) COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share amounts)
For the For the Three Months Ended Nine Months Ended ---------------------- ------------------------ Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2001 2000 2001 2000 --------- ---------- ---------- --------- BASIC ----- Income from continuing operations $ 199,835 $ 103,694 $ 172,942 $ 65,069 Loss from discontinued operations - (440,560) - (567,166) Cumulative effect of change in accounting principles - - (12,001) - --------- --------- ---------- --------- Net income (loss) applicable to common shares $ 199,835 $(336,866) $ 160,941 $(502,097) ========= ========= ========== ========= Applicable Shares for Computation of Income (Loss) per Share: Weighted average common shares outstanding 431,250 426,394 430,703 425,903 ========= ========= ========== ========= Income (Loss) Per Common Share - Basic Income from continuing operations $ 0.46 $ 0.24 $ 0.40 $ 0.15 Loss from discontinued operations - (1.03) - (1.33) Cumulative effect of change in accounting principles - - (0.03) - --------- --------- ---------- --------- Net income (loss) per common share $ 0.46 $ (0.79) $ 0.37 $ (1.18) ========= ========= ========== =========
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 2 of 2) COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share amounts)
For the For the Three Months Ended Nine Months Ended ----------------------------- ----------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2001 2000 2001 2000 --------------- ------------- -------------- -------------- DILUTED ------- Income from continuing operations $ 199,835 $ 103,694 $ 172,942 $ 65,069 Loss from discontinued operations - (440,560) - (567,166) Cumulative effect of change in accounting principles - - (12,001) - --------------- ------------- -------------- -------------- Net income (loss) applicable to common shares $ 199,835 $ (336,866) $ 160,941 $ (502,097) =============== ============= ============== ============== Applicable Shares for Computation of Income (Loss) per Share: Weighted average common shares outstanding 431,250 426,394 430,703 425,903 Weighted average common equivalent shares arising from: Dilutive stock options 4,614 551 4,252 809 Stock subscription warrants 452 - 381 - --------------- ------------- -------------- -------------- Weighted average number of common and common equivalent shares 436,316 426,945 435,336 426,712 =============== ============= ============== ============== Income (Loss) Per Common Share - Diluted Income from continuing operations $ 0.46 $ 0.24 $ 0.40 $ 0.15 Loss from discontinued operations - (1.03) - (1.33) Cumulative effect of change in accounting principles - - (0.03) - --------------- ------------- -------------- -------------- Net income (loss) per common share $ 0.46 $ (0.79) $ 0.37 $ (1.18) =============== ============= ============== ==============
EX-12.1 5 dex121.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 (Amounts in thousands, except ratios) (PAGE 1 OF 2) (Unaudited)
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a)(b) ------------------------------------------------------------------------------------- Sept. 30, Sept. 30, 2001 2000 2000 1999 1998 1997 1996 ------------ ----------- ---------- --------- ---------- --------- ---------- EARNINGS AVAILABLE FOR FIXED CHARGES: Income from continuing operations before income taxes, cumulative effect of changes in accounting principles and extraordinary items $239,569 $ 81,904 $225,424 $170,164 $459,446 $425,082 $536,756 Less (plus) minority interest and undistributed income (loss) of less-than-majority-owned affiliates, net 381 451 440 145 (165) (144) 303 Add: Interest expense 114,065 102,926 152,979 131,609 110,833 90,130 100,226 Appropriate portion of rents (c) 12,700 9,091 14,748 11,974 16,262 17,665 19,527 ------------ ----------- ---------- --------- ---------- --------- ---------- Earnings available for fixed charges $366,715 $194,372 $393,591 $313,892 $586,376 $532,733 $656,812 ============ =========== ========== ========= ========== ========= ========== FIXED CHARGES: Interest expense $114,065 $102,926 $152,979 $131,609 $110,833 $ 90,130 $100,226 Capitalized interest - 74 507 527 993 991 1,789 Appropriate portion of rents (c) 12,700 9,091 14,748 11,974 16,262 17,665 19,527 ------------ ----------- ---------- --------- ---------- --------- ---------- Fixed charges $126,765 $112,091 $168,234 $144,110 $128,088 $108,786 $121,542 ============ =========== ========== ========= ========== ========= ========== Ratio of earnings to fixed charges 2.89 X 1.73 X 2.34 X 2.18 X 4.58 X 4.90 X 5.40 X ============ =========== ========== ========= ========== ========= ==========
(a) Although Mattel merged with The Learning Company, Inc. ("Learning Company") in May 1999, the results of operations of Learning Company have not been included in this calculation since the Consumer Software segment was reported as a discontinued operation effective March 31, 2000. (b) The ratio of earnings to fixed charges for 1996 and 1997 has been restated for the effects of the March 1997 merger of Tyco Toys, Inc. ("Tyco") into Mattel, which was accounted for as a pooling of interests. (c) Portion of rental expenses which is deemed representative of an interest factor, not to exceed one-third of total rental expense. MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Amounts in thousands, except ratios) EXHIBIT 12.1 (PAGE 2 OF 2) (Unaudited)
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a)(b) ----------------------- ---------------------------------------------------------- Sept. 30, Sept. 30, 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- --------- --------- ----------- EARNINGS AVAILABLE FOR FIXED CHARGES: Income from continuing operations before income taxes, cumulative effect of changes in accounting principles and extraordinary items $239,569 $ 81,904 $225,424 $170,164 $459,446 $425,082 $536,756 Less (plus) minority interest and undistributed income (loss) of less-than-majority-owned affiliates, net 381 451 440 145 (165) (144) 303 Add: Interest expense 114,065 102,926 152,979 131,609 110,833 90,130 100,226 Appropriate portion of rents (c) 12,700 9,091 14,748 11,974 16,262 17,665 19,527 ----------- --------- ---------- --------- --------- --------- ----------- Earnings available for fixed charges $366,715 $194,372 $393,591 $313,892 $586,376 $532,733 $656,812 =========== ========= ========== ========= ========= ========= =========== FIXED CHARGES: Interest expense $114,065 $102,926 $152,979 $131,609 $110,833 $90,130 $100,226 Capitalized interest - 74 507 527 993 991 1,789 Dividends - Series B preferred stock - - - - - 2,537 3,406 Dividends - Series C preferred stock - - - 3,980 7,960 7,968 3,985 Appropriate portion of rents (c) 12,700 9,091 14,748 11,974 16,262 17,665 19,527 ----------- --------- ---------- --------- --------- --------- ----------- Fixed charges $126,765 $112,091 $168,234 $148,090 $136,048 $119,291 $128,933 =========== ========= ========== ========= ========= ========= =========== Ratio of earnings to combined fixed charges and preferred stock dividends 2.89 X 1.73 X 2.34 X 2.12 X 4.31 X 4.47 X 5.09 X =========== ========= ========== ========= ========= ========= ===========
(a) Although Mattel merged with Learning Company in May 1999, the results of operations of Learning Company have not been included in this calculation since the Consumer Software segment was reported as a discontinued operation effective March 31, 2000. (b) The ratio of earnings to fixed charges for 1996 and 1997 has been restated for the effects of the March 1997 merger of Tyco into Mattel, which was accounted for as a pooling of interests. (c) Portion of rental expenses which is deemed representative of an interest factor, not to exceed one-third of total rental expense. EX-99.0 6 dex990.txt SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREE. Exhibit 99.0 SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT THIS SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT (this "Amendment") is made and dated as of September 5, 2001, among Mattel Factoring, Inc., a Delaware corporation, as transferor (the "Transferor"), Mattel, Inc., a Delaware ---------- corporation ("Mattel"), as servicer (the "Servicer") and as guarantor (the ------ -------- "Guarantor"), the financial institutions party hereto as purchasers (together --------- with any successors and assigns, the "Purchasers") and Bank of America, N.A., as ---------- the agent for the Purchasers (in such capacity, together with any successors and assigns, the "Agent"), and amends the Receivables Purchase Agreement dated as of ----- March 11, 1998 among the Transferor, the Servicer, the Guarantor, the Purchasers and the Agent, as amended by a First Amendment to Receivables Purchase Agreement dated as of March 31, 2000 (the "First Amendment") (as so amended, the --------------- "Agreement"). --------- RECITAL Each Seller Party, the Purchasers and the Agent desire to amend the Agreement on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. Terms. All terms used herein shall 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. Each Seller Party, the Purchasers and the Agent hereby agree to amend the Agreement as follows: 2.1 The definition of "Obligors" in Section 1.1 of the Agreement (Certain Defined Terms) is amended and restated in its entirety as follows: "'Obligors' means Wal-Mart Stores, Inc., a Delaware corporation, and, -------- for the period from September 5, 2001 through and including December 31, 2001, Target Corporation, a Minnesota corporation." 2.2 The proviso to Section 11.1 of the Agreement is amended by deleting "or" at the end of clause (e); deleting the period at the end of clause (f) and inserting "; or" in lieu thereof, and inserting the following new clauses immediately following clause (f) as follows: "(g) substitute or add Obligors; or (h) amend Section 10.1(i) of the Agreement to reduce the minimum debt ratings required as to any Obligor set forth therein." -1- 2.3 Attachment A to the Form of Purchase Notice (Exhibit I to the Agreement) is amended by deleting "Toys 'R' Us, Inc." wherever it appears and inserting "Target Corporation" in lieu thereof. 3. Representations and Warranties. Each Seller Party severally represents and warrants, as to itself alone, as applicable, to the Agent and the Purchasers as follows: 3.1 Authorization. The execution, delivery and performance of this Amendment by such Seller Party has been duly authorized by all necessary corporate action by such Seller Party and has been duly executed and delivered by such Seller Party. 3.2 Binding Obligation. This Amendment and the Agreement are legal, valid and binding agreements of such Seller Party, enforceable in accordance with their respective terms, except to the extent enforceability thereof may be limited by applicable law relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or limiting creditors' rights generally or by the application of general principles of equity. 3.3 No Legal Obstacle to Agreements. Neither the execution of this Amendment nor the performance of the Agreement by such Seller Party has constituted or resulted in or will constitute or result in a breach of the provisions of any material agreement, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to such Seller Party, or result in the creation under any material agreement of any security interest, lien, charge, or encumbrance upon any of the assets of such Seller Party other than pursuant to the Agreement. No approval or authorization of any Person is required to be obtained by such Seller Party to permit the execution, delivery or performance by such Seller Party of this Amendment. 3.4 Incorporation of Certain Representations. The representations and warranties of each Seller Party set forth in Article V of the Agreement are true and correct as to itself alone 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. After giving effect to this Amendment, no event has occurred and is continuing, or would result from this Amendment, which constitutes a Servicer Default or a Termination Event. 4. Conditions, Effectiveness. The effectiveness of this Amendment shall be subject to the compliance by each Seller Party with its agreements herein contained, and to the delivery of the following to the Agent in form and substance satisfactory to the Agent: 4.1 Corporate Resolutions. A copy of a resolution or resolutions passed by the Board of Directors of each Seller Party, certified by the Secretary or an Assistant Secretary of each Seller Party as being in full force and effect on the date hereof, authorizing the amendments to the Agreement herein provided for and the execution, delivery and performance of this Amendment. -2- 4.2 Authorized Signatories. A certificate, signed by the Secretary or an Assistant Secretary of each Seller Party dated the date hereof, as to the incumbency of the person or persons authorized to execute and deliver this Amendment and any instrument or agreement required hereunder on behalf of each Seller Party. 4.3 Opinion of Counsel. A favorable opinion of Latham & Watkins, counsel to the Seller Parties, as to such matters as the Agent may reasonably request. 4.4 Amendment Fee. Payment of an amendment fee to the Agent for the account of each Purchaser equal to 2 basis points of its Percentage of the Purchasers' Investment Limit. 4.5 Financing Statements. UCC-1 financing statements (a) signed by Mattel Sales as debtor and the Transferor as the secured party in form for filing with the Secretary of State of the State of California, (b) signed by Fischer-Price as debtor and the Transferor as the secured party in form for filing with the Secretary of State of the State of New York, (c) signed by the Transferor as debtor and the Agent as secured party in form for filing with the Secretary of State of Delaware and (d) amending existing UCC-1 filings made in connection with the Agreement. 4.6 Searches. Copies of searches of financing statement(s) filed with (a) the Secretaries of State of the States of Delaware, New York and California showing that the Agent has a valid first priority, perfected security interest in the Listed Receivables. 5. Miscellaneous. 5.1 Effectiveness of the Agreement. Except as hereby amended, the Agreement shall remain in full force and effect. 5.2 Waivers. The parties hereto waive any Termination Event resulting from the Purchase and Sale Agreement not having been previously amended to conform it to the Receivables Purchase Agreement as amended by the First Amendment. This 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 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 Amendment shall become effective as of the effective date written above upon each Seller Party, all Purchasers and the Agent signing a copy hereof, whether the same or counterparts, and the same shall have been delivered to the Agent. 5.4 Jurisdiction. This Amendment, and any instrument or agreement required hereunder, shall be governed by and construed under the laws of the State of California. -3- IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Receivables Purchase Agreement to be duly executed and delivered as of the date first written above. MATTEL FACTORING, INC., as Transferor MATTEL, INC., as Guarantor and Servicer By: /s/ William Stavro ------------------------------------- William Stavro Senior Vice President and Treasurer S-1 BANK OF AMERICA, N.A., as Agent By: /s/ Gina Meador ----------------------------------- Gina Meador Vice President BANK OF AMERICA, N.A., as a Purchaser By: /s/ J. Casey Cosgrove ----------------------------------- J. Casey Cosgrove Vice President S-2 THE CHASE MANHATTAN BANK By: /s/ William P. Rindfuss ------------------------------------------------ Name: William P. Rindfuss ---------------------------------------------- Title: Vice President --------------------------------------------- S-3 FLEET NATIONAL BANK By: /s/ Jorge A. Schwarz ---------------------------------------- Name: Jorge A. Schwarz -------------------------------------- Title: Managing Director ------------------------------------- S-4 PNC BANK, NATIONAL ASSOCIATION By: /s/ Thomas J. Bogdewic --------------------------------------------- Name: Thomas J. Bogdewic ------------------------------------------- Title: Assistant Vice President ------------------------------------------ S-5 TORONTO DOMINION (TEXAS), INC. By: /s/ Debbie A. Greene ---------------------------------------- Name: Debbie A. Greene -------------------------------------- Title: Vice President ------------------------------------- S-6 ABN AMRO BANK N.V. By: /s/ Ellen M. Coleman ----------------------------------- Name: Ellen M. Coleman --------------------------------- Title: Group Vice President -------------------------------- By: /s/ Delia B. Fance ----------------------------------- Name: Delia B. Fance --------------------------------- Title: Group Vice President -------------------------------- S-7 UNION BANK OF CALIFORNIA, N.A. By: /s/ Peter Thompson ------------------------------------ Name: Peter Thompson ---------------------------------- Title: Vice President --------------------------------- S-8 BNP PARIBAS By: /s/ Mitchell Ozawa -------------------------------------- Name: Mitchell Ozawa ------------------------------------ Title: Director ----------------------------------- By: /s/ James Culhane -------------------------------------- Name: James Culhane ------------------------------------ Title: Vice President ----------------------------------- S-9 DRESDNER BANK AG, New York and Grand Cayman Branches By: /s/ Joanna M. Solowski -------------------------------------- Name: Joanna M. Solowski ------------------------------------ Title: Vice President ----------------------------------- By: /s/ Vincent Carotenuto -------------------------------------- Name: Vincent Carotenuto ------------------------------------ Title: Assistant Vice President ----------------------------------- S-10 SANPAOLO IMI S.p.A By: /s/ Carlo Persico -------------------------------------- Name: Carlo Persico ------------------------------------ Title: General Manager ----------------------------------- By: /s/ Robert Wurster -------------------------------------- Name: Robert Wurster ------------------------------------ Title: Senior V.P ----------------------------------- S-11 MANUFACTURERS & TRADERS TRUST CO. By: /s/ Christopher Kania -------------------------------------- Name: Christopher Kania ------------------------------------ Title: Vice President ----------------------------------- S-12 CITICORP USA, INC. By: /s/ Deborah Ironson -------------------------------------- Name: Deborah Ironson ------------------------------------ Title: Vice President ----------------------------------- S-13 SOCIETE GENERALE, NEW YORK BRANCH By: /s/ Carol Radice ------------------------------- Name: Carol Radice ----------------------------- Title: Vice President ---------------------------- By: /s/ Richard Bernal ------------------------------- Name: Richard Bernal ----------------------------- Title: Director ---------------------------- S-14 THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ J. Blake Seaton ---------------------------------- Name: J. Blake Seaton -------------------------------- Title: Vice President & Manager ------------------------------- S-15 THE NORTHERN TRUST COMPANY By: /s/ Melissa A. Whitson -------------------------------------- Name: Melissa A. Whitson ------------------------------------ Title: Vice President ----------------------------------- S-16 EX-99.1 7 dex991.txt AMENDMENT NO. 5 TO 1996 STOCK OPTION PLAN Exhibit 99.1 AMENDMENT NO. 5 TO AMENDED AND RESTATED MATTEL 1996 STOCK OPTION PLAN The Amended and Restated Mattel 1996 Stock Option Plan (the "Plan") is hereby amended, effective as of May 23, 2001, as set forth below. 1. Section 14 of the Plan is hereby amended by replacing the last sentence of subsection (a) thereof with the following: The Option will be immediately exercisable and shall expire on the earlier of (i) the tenth anniversary of the date of its Grant or (ii) the date that is ninety (90) days from the date on which the Outside Director to whom the Option was granted ceases to be a director of the Company; provided, however, that if the Outside Director's ceasing to be a director of the Company is as a result of such Outside Director's death or such Outside Director becoming Disabled, then the date shall be extended to one (1) year from the date the Outside Director ceases to be a director of the Company. 2. Section 14 of the Plan is hereby amended by replacing the last sentence of subsection (b) thereof with the following: This Option shall vest at the rate of twenty-five percent (25%) per year of service, and shall expire on the earlier of (i) the tenth anniversary of the date of its Grant or (ii) the date that is ninety (90) days from the date on which the Outside Director to whom the Option was granted ceases to be a director of the Company; provided, however, that if the Outside Director's ceasing to be a director of the Company is as a result of such Outside Director's death or such Outside Director becoming Disabled, then the date shall be extended to one (1) year from the date the Outside Director ceases to be a director of the Company. 3. The foregoing amendment to the Plan shall apply (i) with respect to all awards granted to Outside Directors under the Plan on or after the date hereof, and (ii) with respect to the unexercised portion of awards previously granted to Outside Directors under the Plan, effective as of the date hereof. 1 IN WITNESS WHEREOF, the Company has caused this Amendment No. 5 to the Plan to be executed, effective as set forth above. MATTEL, INC. By: /s/ Alan Kaye --------------------------------------------- Name: Alan Kaye Title: Senior Vice President, Human Resources 2