NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance
with accounting principles generally accepted in the United States of America 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,
consisting of only those of a normal recurring nature, considered necessary for a fair presentation of the financial position and interim results of Mattel, Inc. and its subsidiaries (Mattel or the Company) as of and for the
periods presented have been included. Because Mattels business is seasonal, results for interim periods are not necessarily indicative of those that may be expected for a full year.
The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the
consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America.
The financial information included herein should be read in conjunction with Mattels consolidated financial statements and related notes in its 2012 Annual Report on Form 10-K.
Accounts receivable are net of allowances for doubtful accounts of $35.9 million, $19.5 million, and $33.5 million
as of June 30, 2013, June 30, 2012, and December 31, 2012, respectively.
Inventories include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Raw materials and work in process
|
|
$
|
142,950
|
|
|
$
|
141,036
|
|
|
$
|
79,216
|
|
Finished goods
|
|
|
650,661
|
|
|
|
605,671
|
|
|
|
385,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
793,611
|
|
|
$
|
746,707
|
|
|
$
|
465,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Property, Plant, and Equipment
|
Property, plant, and equipment, net includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Land
|
|
$
|
26,605
|
|
|
$
|
26,637
|
|
|
$
|
26,692
|
|
Buildings
|
|
|
268,985
|
|
|
|
264,612
|
|
|
|
268,381
|
|
Machinery and equipment
|
|
|
956,487
|
|
|
|
891,976
|
|
|
|
931,732
|
|
Tools, dies, and molds
|
|
|
709,723
|
|
|
|
654,267
|
|
|
|
674,119
|
|
Capital leases
|
|
|
23,271
|
|
|
|
23,271
|
|
|
|
23,271
|
|
Leasehold improvements
|
|
|
221,322
|
|
|
|
197,505
|
|
|
|
208,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,206,393
|
|
|
|
2,058,268
|
|
|
|
2,133,095
|
|
Less: accumulated depreciation
|
|
|
(1,585,225
|
)
|
|
|
(1,496,965
|
)
|
|
|
(1,539,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
621,168
|
|
|
$
|
561,303
|
|
|
$
|
593,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Goodwill is allocated to various reporting units, which are at the operating segment level, for purposes of evaluating
whether goodwill is impaired. Mattels reporting units are: (i) North America, (ii) International, and (iii) American Girl. Mattel tests its goodwill for impairment annually in the third quarter and whenever events or
changes in circumstances indicate that the carrying amount may exceed its fair value.
The change in the carrying amount of
goodwill by operating segment for the six months ended June 30, 2013 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America and American Girl operating segments selling those brands, thereby
causing foreign currency translation impact for these operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
|
Currency
Exchange Rate
Impact
|
|
|
June 30,
2013
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
North America
|
|
$
|
546,898
|
|
|
$
|
(2,406
|
)
|
|
$
|
544,492
|
|
International
|
|
|
320,169
|
|
|
|
(6,222
|
)
|
|
|
313,947
|
|
American Girl
|
|
|
213,731
|
|
|
|
(86
|
)
|
|
|
213,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
1,080,798
|
|
|
$
|
(8,714
|
)
|
|
$
|
1,072,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of HIT Entertainment
On February 1, 2012, Mattel acquired Helium Holdings 1A Ltd, a private limited company existing under the laws
of Jersey (HIT Entertainment), pursuant to the Stock Purchase Agreement dated as of October 23, 2011, between Mattels wholly-owned subsidiary, Mattel Entertainment Holdings Limited, a private limited company existing under the
laws of England and Wales (the Purchasing Sub), HIT Entertainments parent company, HIT Entertainment Scottish Limited Partnership, a limited partnership existing under the laws of Scotland and majority-owned by a consortium of
funds led by Apax Partners, LLP and its affiliates (the Selling Stockholder) and, with respect to certain provisions thereof, Mattel (the Purchase Agreement). Pursuant to the terms set forth in the Purchase Agreement, Mattel
indirectly acquired, through the Purchasing Sub, 100% of the issued and outstanding shares of HIT Entertainment from the Selling Stockholder for total cash consideration of $713.5 million, including payment for acquired cash, subject to customary
adjustments. HIT Entertainment owns and licenses a diverse portfolio of pre-school entertainment brands, including Thomas & Friends
®
.
The total consideration was allocated
to the assets acquired and liabilities assumed based on their estimated fair values. As a result of the acquisition, Mattel recognized $510.7 million of identifiable intangible assets (primarily related to intellectual property rights), $49.4
million of net liabilities assumed (primarily related to deferred tax liabilities), and $252.2 million of goodwill, which is not deductible for tax purposes. The fair values of the identifiable intangible assets were estimated based on the
multi-period excess earnings method, using Level 3 inputs within the fair value hierarchy, which included forecasted future cash flows, long-term revenue growth rates, and the weighted average cost of capital. Goodwill relates to a number of factors
built into the purchase price, including the future earnings and cash flow potential of the business, as well as the complementary strategic fit and the resulting synergies it brings to Mattels existing operations.
Mattel finalized the valuation of the assets acquired and liabilities assumed in the fourth quarter of 2012, which resulted in
adjustments to the purchase price allocation during the measurement period. As such, Mattel has retrospectively adjusted the provisional amounts recorded in its consolidated balance sheet as of June 30, 2012 as if the valuation of the assets
acquired and liabilities assumed was finalized as of the acquisition date. The retrospective adjustments resulted in an increase to the net liabilities assumed of approximately $11 million and goodwill of approximately $10 million, including a
reduction to the consideration paid to acquire HIT Entertainment of approximately $1 million, which was also recognized as an increase to Mattels other current
8
assets in the consolidated balance sheet. The reduction to the consideration paid also resulted in a retrospective adjustment to the consolidated statement of cash flows, which reduced cash flows
used for investing activities and increased cash flows used for operating activities by approximately $1 million for the six months ended June 30, 2012. No retrospective adjustments have been made to the consolidated statements of operations
for the three and six months ended June 30, 2012.
Additionally, during the three and six months ended June 30,
2013, Mattel recognized approximately $1 million and $3 million of integration costs, respectively. During the three and six months ended June 30, 2012, Mattel recognized approximately $1 million and $11 million of integration costs,
respectively. Mattel also recognized approximately $6 million of transaction costs during the six months ended June 30, 2012. No transaction costs were incurred during the three months ended June 30, 2012 or during the three and six months
ended June 30, 2013. Integration and transaction costs are recorded within other selling and administrative expenses in the consolidated statements of operations. The pro forma and actual results of operations for this acquisition have not been
presented because they are not material.
6.
|
Other Noncurrent Assets
|
Other noncurrent assets include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Nonamortizable identifiable intangibles
|
|
$
|
504,241
|
|
|
$
|
617,223
|
|
|
$
|
617,223
|
|
Deferred income taxes
|
|
|
439,937
|
|
|
|
506,598
|
|
|
|
374,667
|
|
Identifiable intangibles (net of amortization of $68.8 million, $58.7 million, and $64.9 million,
respectively)
|
|
|
182,005
|
|
|
|
94,450
|
|
|
|
88,786
|
|
Other
|
|
|
249,796
|
|
|
|
214,865
|
|
|
|
215,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,375,979
|
|
|
$
|
1,433,136
|
|
|
$
|
1,295,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the acquisition of HIT Entertainment, as more fully described in Note 5 to the
Consolidated Financial StatementsGoodwill of this Quarterly Report on Form 10-Q, Mattel recognized $495.0 million of nonamortizable identifiable intangible assets and $15.7 million of amortizable identifiable intangible assets, primarily
related to intellectual property rights.
Mattel tests nonamortizable intangible assets, including trademarks and trade names,
for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying values may exceed the fair values. Mattel also tests its amortizable intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying value of the asset may not be recoverable.
During the second
quarter of 2013, Mattel changed its brand strategy for Polly Pocket
®
, which includes a more focused allocation
of resources to support the Polly Pocket brand in specific markets, resulting in a reduction of the forecasted future cash flows of the brand. As a result of the change, Mattel tested the Polly Pocket trade name for impairment. The Polly Pocket
trade name, which had a carrying value of approximately $113 million, was previously determined to be a nonamortizable intangible asset. The fair value of the Polly Pocket trade name was determined to be approximately $99 million based on a
discounted cash flow analysis using the multi-period excess earnings method. Level 3 inputs, including forecasted future cash flows, an estimated useful life, and a discount rate, were used in the valuation. Since the fair value of the asset
was below the carrying value, Mattel recorded an impairment charge of approximately $14 million, which is reflected within other selling and administrative expenses for the North America and International operating segments.
In conjunction with the Polly Pocket trade name impairment test, Mattel also reassessed the intangible assets nonamortizable
classification and determined that the nonamortizable classification could no longer be
9
supported. The Polly Pocket trade name has been reclassified as an amortizable intangible asset, and the remaining fair value of the asset will be amortized over its estimated remaining useful
life.
Accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Litigation accrual
|
|
$
|
137,800
|
|
|
$
|
|
|
|
$
|
137,800
|
|
Royalties
|
|
|
55,904
|
|
|
|
47,643
|
|
|
|
97,051
|
|
Taxes other than income taxes
|
|
|
48,492
|
|
|
|
48,573
|
|
|
|
80,673
|
|
Advertising and promotion
|
|
|
9,378
|
|
|
|
44,978
|
|
|
|
87,878
|
|
Other
|
|
|
332,627
|
|
|
|
333,329
|
|
|
|
484,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
584,201
|
|
|
$
|
474,523
|
|
|
$
|
887,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mattel maintains and periodically amends or replaces its domestic unsecured committed revolving credit facility with a
commercial bank group. The facility is used as a back-up to Mattels commercial paper program, which is used as the primary source of financing for the seasonal working capital requirements of its domestic subsidiaries. The agreement governing
the credit facility was amended and restated on March 11, 2013 to, among other things, (i) extend the maturity date of the credit facility to March 12, 2018, (ii) increase aggregate commitments under the credit facility to $1.60
billion, with an accordion feature, which allows Mattel to increase the aggregate availability under the credit facility to $1.85 billion under certain circumstances, (iii) decrease the applicable interest rate margins to a range of
0.00% to 0.75% above the applicable base rate for base rate loans and 0.88% to 1.75% above the applicable London Interbank Borrowing Rate (LIBOR) for Eurodollar rate loans, in each case depending on Mattels senior unsecured
long-term debt rating, and (iv) decrease commitment fees to a range of 0.08% to 0.28% of the unused commitments under the credit facility.
The amended facility has a borrowing capacity of up to $1.60 billion over a term of five years. Prior to the amendment, the facility permitted Mattel to borrow up to $1.40 billion and had two years
remaining to maturity. The proportion of unamortized debt issuance costs from the prior facility renewal related to creditors involved in both the prior facility and amended facility and borrowing costs incurred as a result of the amendment were
deferred and will be amortized over the term of the amended facility.
Mattel is required to meet financial ratio covenants at
the end of each quarter and fiscal year, using the formulae specified in the credit facility agreement to calculate the ratios. Mattel was in compliance with such covenants at June 30, 2013.
The credit agreement is a material agreement and failure to comply with the financial ratio covenants may result in an event of default
under the terms of the credit facility. If Mattel defaulted under the terms of the credit facility, its ability to meet its seasonal financing requirements could be adversely affected.
10
Long-term debt includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Medium-term notes due November 2013
|
|
$
|
50,000
|
|
|
$
|
100,000
|
|
|
$
|
50,000
|
|
2008 Senior Notes
|
|
|
|
|
|
|
350,000
|
|
|
|
350,000
|
|
2010 Senior Notes due October 2020 and October 2040
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
2011 Senior Notes due November 2016 and November 2041
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
600,000
|
|
2013 Senior Notes due March 2018 and March 2023
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,650,000
|
|
|
|
1,550,000
|
|
|
|
1,500,000
|
|
Less: current portion
|
|
|
(50,000
|
)
|
|
|
(400,000
|
)
|
|
|
(400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
1,600,000
|
|
|
$
|
1,150,000
|
|
|
$
|
1,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2013, Mattel issued $250.0 million aggregate principal amount of 1.70% senior unsecured notes
(1.70% Senior Notes) due March 15, 2018 and $250.0 million aggregate principal amount of 3.15% senior unsecured notes (3.15% Senior Notes) due March 15, 2023 (collectively, 2013 Senior Notes). Interest
on the 2013 Senior Notes is payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Mattel may redeem all or part of the 1.70% Senior Notes at any time or from time to time at its option, at a
redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest to but excluding the redemption date, and (ii) a make-whole amount based on the yield of a
comparable US Treasury security plus 15 basis points. Mattel may redeem all or part of the 3.15% Senior Notes at any time or from time to time prior to December 15, 2022 (three months prior to the maturity date of the 3.15% Senior Notes) at its
option, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest to but excluding the redemption date, and (ii) a make-whole amount based on the
yield of a comparable US Treasury security plus 20 basis points. Mattel may redeem all or part of the 3.15% Senior Notes at any time or from time to time on or after December 15, 2022 (three months prior to the maturity date for the 3.15%
Senior Notes) at its option, at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to but excluding the redemption date.
During the first quarter of 2013, Mattel repaid $350.0 million aggregate principal amount of its 5.625% senior unsecured notes due
March 15, 2013 (2008 Senior Notes) in connection with their scheduled maturity using proceeds from the issuance of the 2013 Senior Notes.
10.
|
Other Noncurrent Liabilities
|
Other noncurrent liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Benefit plan liabilities
|
|
$
|
279,005
|
|
|
$
|
265,085
|
|
|
$
|
284,614
|
|
Noncurrent tax liabilities
|
|
|
202,441
|
|
|
|
193,704
|
|
|
|
213,658
|
|
Other
|
|
|
155,107
|
|
|
|
143,853
|
|
|
|
145,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
636,553
|
|
|
$
|
602,642
|
|
|
$
|
643,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Accumulated Other Comprehensive Income (Loss)
|
In 2013, Mattel adopted Accounting Standards Update 2013-02,
Reporting of Amounts Reclassified Out of Accumulated
Other Comprehensive Income
, which requires an entity to present either on the face of the
11
statement where net income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of
net income. The following tables present changes in the accumulated balances for each component of other comprehensive income, including current period other comprehensive income and reclassifications out of accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2013
|
|
|
|
Derivative
Instruments
|
|
|
Defined Benefit
Pension Plans
|
|
|
Currency
Translation
Adjustments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2013
|
|
$
|
4,426
|
|
|
$
|
(187,225
|
)
|
|
$
|
(298,626
|
)
|
|
$
|
(481,425
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(872
|
)
|
|
|
314
|
|
|
|
(37,383
|
)
|
|
|
(37,941
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
326
|
|
|
|
3,120
|
|
|
|
|
|
|
|
3,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in other comprehensive income
|
|
|
(546
|
)
|
|
|
3,434
|
|
|
|
(37,383
|
)
|
|
|
(34,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of June 30, 2013
|
|
$
|
3,880
|
|
|
$
|
(183,791
|
)
|
|
$
|
(336,009
|
)
|
|
$
|
(515,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2013
|
|
|
|
Derivative
Instruments
|
|
|
Defined Benefit
Pension Plans
|
|
|
Currency
Translation
Adjustments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2012
|
|
$
|
(2,583
|
)
|
|
$
|
(190,656
|
)
|
|
$
|
(271,247
|
)
|
|
$
|
(464,486
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
7,266
|
|
|
|
625
|
|
|
|
(64,762
|
)
|
|
|
(56,871
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(803
|
)
|
|
|
6,240
|
|
|
|
|
|
|
|
5,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in other comprehensive income
|
|
|
6,463
|
|
|
|
6,865
|
|
|
|
(64,762
|
)
|
|
|
(51,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of June 30, 2013
|
|
$
|
3,880
|
|
|
$
|
(183,791
|
)
|
|
$
|
(336,009
|
)
|
|
$
|
(515,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2012
|
|
|
|
Derivative
Instruments
|
|
|
Defined Benefit
Pension Plans
|
|
|
Currency
Translation
Adjustments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2012
|
|
$
|
18,890
|
|
|
$
|
(170,875
|
)
|
|
$
|
(243,560
|
)
|
|
$
|
(395,545
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
11,968
|
|
|
|
(1,756
|
)
|
|
|
(73,654
|
)
|
|
|
(63,442
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(4,328
|
)
|
|
|
4,084
|
|
|
|
|
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in other comprehensive income
|
|
|
7,640
|
|
|
|
2,328
|
|
|
|
(73,654
|
)
|
|
|
(63,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of June 30, 2012
|
|
$
|
26,530
|
|
|
$
|
(168,547
|
)
|
|
$
|
(317,214
|
)
|
|
$
|
(459,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2012
|
|
|
|
Derivative
Instruments
|
|
|
Defined Benefit
Pension Plans
|
|
|
Currency
Translation
Adjustments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2011
|
|
$
|
24,616
|
|
|
$
|
(172,398
|
)
|
|
$
|
(298,863
|
)
|
|
$
|
(446,645
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
10,780
|
|
|
|
(4,311
|
)
|
|
|
(18,351
|
)
|
|
|
(11,882
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
(8,866
|
)
|
|
|
8,162
|
|
|
|
|
|
|
|
(704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in other comprehensive income
|
|
|
1,914
|
|
|
|
3,851
|
|
|
|
(18,351
|
)
|
|
|
(12,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of June 30, 2012
|
|
$
|
26,530
|
|
|
$
|
(168,547
|
)
|
|
$
|
(317,214
|
)
|
|
$
|
(459,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the classification and amount of the reclassifications from accumulated
other comprehensive income to the statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
June 30, 2013
|
|
|
For the Three
Months Ended
June 30, 2012
|
|
|
Statements of Operations
Classification
|
|
|
(In thousands)
|
|
|
|
Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
(Loss) Gain on foreign currency forward exchange contracts
|
|
$
|
(318
|
)
|
|
$
|
4,409
|
|
|
Cost of sales
|
|
|
|
(8
|
)
|
|
|
(81
|
)
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(326
|
)
|
|
$
|
4,328
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
Prior service credit (cost)
|
|
$
|
126
|
|
|
$
|
(11
|
)
|
|
(a)
|
Actuarial loss
|
|
|
(5,146
|
)
|
|
|
(5,772
|
)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,020
|
)
|
|
|
(5,783
|
)
|
|
|
|
|
|
1,900
|
|
|
|
1,699
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,120
|
)
|
|
$
|
(4,084
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended
June 30, 2013
|
|
|
For the Six
Months Ended
June 30, 2012
|
|
|
Statements of
Operations
Classification
|
|
|
(In thousands)
|
|
|
|
Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
Gain on foreign currency forward exchange contracts
|
|
$
|
813
|
|
|
$
|
9,032
|
|
|
Cost of sales
|
|
|
|
(10
|
)
|
|
|
(166
|
)
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
803
|
|
|
$
|
8,866
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
Prior service credit (cost)
|
|
$
|
252
|
|
|
$
|
(21
|
)
|
|
(a)
|
Actuarial loss
|
|
|
(10,292
|
)
|
|
|
(11,540
|
)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,040
|
)
|
|
|
(11,561
|
)
|
|
|
|
|
|
3,800
|
|
|
|
3,399
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,240
|
)
|
|
$
|
(8,162
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The amortization of prior service credit (cost) and actuarial loss is included in the computation of net periodic benefit cost. Refer to Note 15 to the
Consolidated Financial StatementsEmployee Benefit Plans of this Quarterly Report on Form 10-Q for additional information regarding Mattels net periodic benefit cost.
|
Currency Translation Adjustments
Mattels reporting currency is the US dollar. The translation of its net investments in subsidiaries with non-US dollar functional currencies subjects Mattel to currency exchange rate fluctuations in
its results of operations and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies are translated into US dollars at fiscal period-end exchange rates. Income, expense, and cash flow items are translated
at weighted average exchange rates prevailing during the fiscal period. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders equity. Currency translation
adjustments resulted in a net loss of $64.8 million for the six months ended June 30, 2013, primarily due to the weakening of the Euro, Brazilian real, British pound sterling, and Australian dollar against the US dollar. Currency translation
adjustments resulted in a net loss of $18.4 million for the six months ended June 30, 2012, primarily due to weakening of the Euro and Brazilian real against the US dollar.
12.
|
Derivative Instruments
|
Mattel seeks to mitigate its exposure to foreign currency transaction risk by monitoring its foreign currency
transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts. Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of
inventory denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. These derivative instruments have been designated as effective cash flow hedges, whereby the unsettled hedges are reported in
Mattels consolidated balance sheets at fair value, with changes in the fair value of the hedges reflected in other comprehensive income (OCI). Realized gains and losses for these contracts are recorded in the consolidated
statements of operations in the period in which the inventory is sold to customers. Additionally, Mattel uses foreign currency forward exchange contracts to hedge intercompany loans and advances denominated in foreign currencies. Due to the
short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts, and as such, changes in fair value are recorded in the period of change in the consolidated statements of operations. As of June 30,
2013, June 30, 2012, and December 31, 2012, Mattel held foreign currency forward exchange contracts with notional amounts of approximately $1.43 billion, $1.34 billion, and $1.36 billion, respectively.
14
The following table presents Mattels derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Balance Sheet Classification
|
|
|
Fair Value
|
|
|
|
|
|
|
June
30,
2013
|
|
|
June
30,
2012
|
|
|
December
31,
2012
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Prepaid expenses and
other current assets
|
|
|
$
|
7,389
|
|
|
$
|
32,277
|
|
|
$
|
3,064
|
|
Foreign currency forward exchange contracts
|
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
564
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
7,389
|
|
|
$
|
32,841
|
|
|
$
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Prepaid expenses and
other current assets
|
|
|
$
|
|
|
|
$
|
12,342
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
7,389
|
|
|
$
|
45,183
|
|
|
$
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet Classification
|
|
|
Fair Value
|
|
|
|
|
|
|
June
30,
2013
|
|
|
June 30,
2012
|
|
|
December
31,
2012
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Accrued liabilities
|
|
|
$
|
2,436
|
|
|
$
|
2,980
|
|
|
$
|
8,093
|
|
Foreign currency forward exchange contracts
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
19
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
|
|
$
|
2,436
|
|
|
$
|
2,999
|
|
|
$
|
8,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Accrued liabilities
|
|
|
$
|
2,642
|
|
|
$
|
|
|
|
$
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
5,078
|
|
|
$
|
2,999
|
|
|
$
|
8,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The following tables present the classification and amount of gains and losses, net of tax,
from derivatives reported in the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30, 2013
|
|
|
For the Three Months Ended
June 30, 2012
|
|
|
Statements of
Operations
Classification
|
|
|
|
Amount of Gain
(Loss) Recognized
in OCI
|
|
|
Amount of
Gain (Loss)
Reclassified from
Accumulated OCI
to Statements
of
Operations
|
|
|
Amount of Gain
(Loss) Recognized
in OCI
|
|
|
Amount of
Gain (Loss)
Reclassified from
Accumulated OCI
to Statements
of
Operations
|
|
|
|
|
(In thousands)
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
$
|
(872
|
)
|
|
$
|
(326
|
)
|
|
$
|
11,968
|
|
|
$
|
4,328
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2013
|
|
|
For the Six Months Ended
June 30, 2012
|
|
|
Statements of
Operations
Classification
|
|
|
|
Amount of Gain
(Loss) Recognized
in OCI
|
|
|
Amount of
Gain (Loss)
Reclassified from
Accumulated OCI
to Statements
of
Operations
|
|
|
Amount of Gain
(Loss) Recognized
in OCI
|
|
|
Amount of
Gain (Loss)
Reclassified from
Accumulated OCI
to Statements
of
Operations
|
|
|
|
|
(In thousands)
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
$
|
7,266
|
|
|
$
|
803
|
|
|
$
|
10,780
|
|
|
$
|
8,866
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net loss of $0.3 million and net gain of $0.8 million reclassified from accumulated other
comprehensive loss to the consolidated statements of operations for the three and six months ended June 30, 2013, respectively, and the net gains of $4.3 million and $8.9 million reclassified from accumulated other comprehensive loss to the
consolidated statements of operations for the three and six months ended June 30, 2012, respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in the
Statements of
Operations
|
|
|
Statements of
Operations
Classification
|
|
|
For the Three
Months Ended
June 30, 2013
|
|
|
For the Three
Months Ended
June 30, 2012
|
|
|
|
|
(In thousands)
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
$
|
(3,546
|
)
|
|
$
|
(28,555
|
)
|
|
Non-operating income/expense
|
Foreign currency forward exchange contracts
|
|
|
(372
|
)
|
|
|
(782
|
)
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,918
|
)
|
|
$
|
(29,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in the
Statements of
Operations
|
|
|
Statements of
Operations
Classification
|
|
|
For the Six
Months Ended
June 30, 2013
|
|
|
For the Six
Months Ended
June 30, 2012
|
|
|
|
|
(In thousands)
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
$
|
(17,321
|
)
|
|
$
|
(8,107
|
)
|
|
Non-operating income/expense
|
Foreign currency forward exchange contracts
|
|
|
31
|
|
|
|
(535
|
)
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(17,290
|
)
|
|
$
|
(8,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net losses of $3.9 million and $17.3 million recognized in the consolidated statements of operations
for the three and six months ended June 30, 2013, respectively, and the net losses of $29.3 million and $8.6 million recognized in the consolidated statements of operations for the three and six months ended June 30, 2012, respectively,
are offset by foreign currency transaction gains and losses on the related hedged balances.
13.
|
Fair Value Measurements
|
The following table presents information about Mattels assets and liabilities measured and reported in the
financial statements at fair value and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows:
|
|
|
Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to
access.
|
|
|
|
Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
|
|
|
|
Level 3 Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value
of the assets or liabilities.
|
17
Mattels financial assets and liabilities measured and reported at fair value on a
recurring basis include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
7,389
|
|
|
$
|
|
|
|
$
|
7,389
|
|
Auction rate securities (b)
|
|
|
|
|
|
|
|
|
|
|
23,222
|
|
|
|
23,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
7,389
|
|
|
$
|
23,222
|
|
|
$
|
30,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
5,078
|
|
|
$
|
|
|
|
$
|
5,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
45,183
|
|
|
$
|
|
|
|
$
|
45,183
|
|
Auction rate securities (b)
|
|
|
|
|
|
|
|
|
|
|
14,460
|
|
|
|
14,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
45,183
|
|
|
$
|
14,460
|
|
|
$
|
59,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
2,999
|
|
|
$
|
|
|
|
$
|
2,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
3,068
|
|
|
$
|
|
|
|
$
|
3,068
|
|
Auction rate securities (b)
|
|
|
|
|
|
|
|
|
|
|
19,256
|
|
|
|
19,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
3,068
|
|
|
$
|
19,256
|
|
|
$
|
22,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
8,757
|
|
|
$
|
|
|
|
$
|
8,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The fair value of the foreign currency forward exchange contracts is based on dealer quotes of market forward rates and reflects the amount that Mattel would receive
or pay at their maturity dates for contracts involving the same notional amounts, currencies, and maturity dates.
|
(b)
|
The fair value of the auction rate securities is estimated using a discounted cash flow model based on (i) estimated interest rates, timing, and amount of cash
flows, (ii) credit spreads, recovery rates, and credit quality of the underlying securities, (iii) illiquidity considerations, and (iv) market correlation.
|
The following table presents information about Mattels assets measured and reported at fair value on a recurring basis using
significant Level 3 inputs:
|
|
|
|
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2012
|
|
$
|
19,256
|
|
Unrealized gain
|
|
|
3,966
|
|
|
|
|
|
|
Balance at June 30, 2013
|
|
$
|
23,222
|
|
|
|
|
|
|
18
Other Financial Instruments
Mattels financial instruments include cash and equivalents, accounts receivable and payable, short-term borrowings, and accrued liabilities. The carrying value of these instruments approximates fair
value because of their short-term nature.
The estimated fair value of Mattels long-term debt, including the current
portion, was $1.69 billion (compared to a carrying value of $1.65 billion) as of June 30, 2013, $1.67 billion (compared to a carrying value of $1.55 billion) as of June 30, 2012, and $1.63 billion (compared to a carrying value of $1.50
billion) as of December 31, 2012. The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and are classified as Level 2 within the fair value hierarchy.
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Certain of Mattels restricted stock units (RSUs) are considered participating securities
because they contain nonforfeitable rights to dividend equivalents.
Under the two-class method, net income is reduced by the
amount of dividends declared in the period for each class of common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period
had been distributed. Basic earnings per common share excludes dilution and is calculated by dividing net income allocable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per common share
is calculated by dividing net income allocable to common shares by the weighted average number of common shares for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table reconciles
earnings per common share for the three and six months ended June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands, except per share amounts)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
73,348
|
|
|
$
|
96,218
|
|
|
$
|
111,859
|
|
|
$
|
104,047
|
|
Less net income allocable to participating RSUs (a)
|
|
|
(725
|
)
|
|
|
(1,051
|
)
|
|
|
(1,131
|
)
|
|
|
(1,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for basic common shares
|
|
$
|
72,623
|
|
|
$
|
95,167
|
|
|
$
|
110,728
|
|
|
$
|
102,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
346,614
|
|
|
|
341,256
|
|
|
|
345,453
|
|
|
|
340,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.21
|
|
|
$
|
0.28
|
|
|
$
|
0.32
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
73,348
|
|
|
$
|
96,218
|
|
|
$
|
111,859
|
|
|
$
|
104,047
|
|
Less net income allocable to participating RSUs (a)
|
|
|
(730
|
)
|
|
|
(1,052
|
)
|
|
|
(1,147
|
)
|
|
|
(1,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for diluted common shares
|
|
$
|
72,618
|
|
|
$
|
95,166
|
|
|
$
|
110,712
|
|
|
$
|
102,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
346,614
|
|
|
|
341,256
|
|
|
|
345,453
|
|
|
|
340,197
|
|
Weighted average common equivalent shares arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and non-participating RSUs
|
|
|
3,810
|
|
|
|
4,298
|
|
|
|
4,050
|
|
|
|
4,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and potential common shares
|
|
|
350,424
|
|
|
|
345,554
|
|
|
|
349,503
|
|
|
|
344,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.21
|
|
|
$
|
0.28
|
|
|
$
|
0.32
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During the three and six months ended June 30, 2013 and 2012, Mattel allocated a proportionate share of both dividends and undistributed earnings to
participating RSUs.
|
19
The calculation of potential common shares assumes the exercise of dilutive stock options
and vesting of non-participating RSUs, net of assumed treasury share repurchases at average market prices. Nonqualified stock options and non-participating RSUs totaling 0.1 million shares were excluded from the calculation of diluted net
income per common share for both the three months ended June 30, 2013 and 2012, respectively, because they were antidilutive. Nonqualified stock options and non-participating RSUs totaling 0.1 million shares were excluded from the
calculation of diluted net income per common share for both the six months ended June 30, 2013 and 2012, respectively, because they were antidilutive.
15.
|
Employee Benefit Plans
|
Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all
employees of these companies, which are more fully described in Note 4 to the Consolidated Financial StatementsEmployee Benefit Plans in its 2012 Annual Report on Form 10-K.
A summary of the components of net periodic benefit cost for Mattels defined benefit pension plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Service cost
|
|
$
|
3,789
|
|
|
$
|
3,182
|
|
|
$
|
7,688
|
|
|
$
|
6,501
|
|
Interest cost
|
|
|
6,635
|
|
|
|
7,479
|
|
|
|
13,265
|
|
|
|
14,971
|
|
Expected return on plan assets
|
|
|
(7,329
|
)
|
|
|
(7,764
|
)
|
|
|
(14,658
|
)
|
|
|
(15,524
|
)
|
Amortization of prior service (credit) cost
|
|
|
(126
|
)
|
|
|
11
|
|
|
|
(252
|
)
|
|
|
21
|
|
Recognized actuarial loss
|
|
|
5,106
|
|
|
|
5,742
|
|
|
|
10,212
|
|
|
|
11,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,075
|
|
|
$
|
8,650
|
|
|
$
|
16,255
|
|
|
$
|
17,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the components of net periodic benefit cost for Mattels postretirement benefit plans
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Service cost
|
|
$
|
22
|
|
|
$
|
19
|
|
|
$
|
44
|
|
|
$
|
38
|
|
Interest cost
|
|
|
338
|
|
|
|
345
|
|
|
|
676
|
|
|
|
690
|
|
Recognized actuarial loss
|
|
|
40
|
|
|
|
30
|
|
|
|
80
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
400
|
|
|
$
|
394
|
|
|
$
|
800
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2013, Mattel made cash contributions totaling approximately $10
million and $1 million to its defined benefit pension and postretirement benefit plans, respectively.
Mattel has various stock compensation plans, which are more fully described in Note 7 to the Consolidated
Financial StatementsShare-Based Payments in its 2012 Annual Report on Form 10-K. Under the Mattel, Inc. 2010 Equity and Long-Term Compensation Plan, Mattel has the ability to grant nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, RSUs, performance awards, dividend equivalent rights, and shares of common stock to officers, employees, and other persons providing services to Mattel. Stock options are granted with exercise prices at
the fair market value of Mattels common stock on the applicable grant date and expire no later than ten years from the date of grant. Both stock options and time-vesting RSUs generally provide for vesting over a period of three years from the
date of grant.
20
Compensation expense, included within other selling and administrative expenses, related to
stock options and RSUs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Stock option compensation expense
|
|
$
|
1,609
|
|
|
$
|
2,236
|
|
|
$
|
4,218
|
|
|
$
|
5,491
|
|
RSU compensation expense
|
|
|
12,110
|
|
|
|
11,104
|
|
|
|
23,363
|
|
|
|
19,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,719
|
|
|
$
|
13,340
|
|
|
$
|
27,581
|
|
|
$
|
25,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013, total unrecognized compensation cost related to unvested share-based payments
totaled $53.5 million and is expected to be recognized over a weighted-average period of 1.7 years.
Mattel uses treasury
shares purchased under its share repurchase program to satisfy stock option exercises and the vesting of RSUs. Cash received for stock option exercises for the six months ended June 30, 2013 and 2012 was $106.8 million and $82.1 million,
respectively.
17.
|
Other Selling and Administrative Expenses
|
Other selling and administrative expenses include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Design and development
|
|
$
|
47,411
|
|
|
$
|
47,537
|
|
|
$
|
95,384
|
|
|
$
|
94,161
|
|
Identifiable intangible asset amortization
|
|
|
2,928
|
|
|
|
3,082
|
|
|
|
5,731
|
|
|
|
5,716
|
|
18.
|
Foreign Currency Transaction Gains and Losses
|
Currency exchange rate fluctuations may impact Mattels results of operations and cash flows. Mattels
currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on
unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income to which they relate in the consolidated statements of operations. For hedges of intercompany loans and
advances, which do not qualify for hedge accounting treatment, the gains or losses on the hedges resulting from changes in fair value as well as the offsetting transaction gains or losses on the related hedged items, along with unhedged items,
are recognized in non-operating (expense) income, net in the consolidated statements of operations. Inventory purchase and sale transactions denominated in the Euro, British pound sterling, Mexican peso, Brazilian real, and Indonesian
rupiah are the primary transactions that cause foreign currency transaction exposure for Mattel.
Currency transaction gains
(losses) included in the consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Operating income
|
|
$
|
3,235
|
|
|
$
|
8,892
|
|
|
$
|
14,115
|
|
|
$
|
22,473
|
|
Other non-operating (expense) income, net
|
|
|
(1,054
|
)
|
|
|
303
|
|
|
|
(922
|
)
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transaction gains
|
|
$
|
2,181
|
|
|
$
|
9,195
|
|
|
$
|
13,193
|
|
|
$
|
22,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Mattels provision for income taxes was $11.0 million and $17.5 million for the six months ended June 30,
2013 and 2012, respectively. During the three and six months ended June 30, 2013, Mattel recognized net discrete tax benefits of $11.2 million and $15.2 million, respectively, primarily related to reassessments of prior years tax
liabilities based on the status of current audits and tax filings in various jurisdictions, settlements, and enacted tax law changes. During the three and six months ended June 30, 2012, Mattel recognized net discrete tax benefits of $10.5
million, primarily related to reassessments of prior years tax liabilities based on the status of audits and tax filings in various jurisdictions, settlements, and enacted tax law changes.
In the normal course of business, Mattel is regularly audited by the Internal Revenue Service (IRS). In June 2013, Mattel met
with the IRS Office of Appeals to continue resolution discussions related to the issues that remained unresolved following the examination of Mattels 2008 and 2009 federal income tax returns by the IRS. Mattel anticipates the appeals process
will involve additional discussions before these disputed issues are resolved. Mattel continues to believe in its interpretations of the relevant legal, administrative, and other applicable guidance on the tax issues disputed by the IRS. However, if
the disputed issues are resolved in a manner inconsistent with Mattels expectations, such an outcome could have a material impact on its financial statements. At this time, Mattel believes it is reasonably possible that in the next twelve
months, the total unrecognized tax benefits could decrease by approximately $185 million to $205 million, of which a majority relates to a capital loss for which Mattel recognized no financial statement benefit.
Mattel is also regularly audited by state and foreign tax authorities. Based on the current status of state and foreign audits, Mattel
believes it is reasonably possible that in the next twelve months, the total unrecognized tax benefits could decrease by approximately $9 million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate
settlement of any particular issue with the applicable taxing authority could have a material impact on Mattels consolidated financial statements.
Litigation Related to Carter Bryant and MGA Entertainment, Inc.
In April 2004, Mattel filed a lawsuit in Los Angeles County Superior Court against Carter Bryant (Bryant), a former Mattel
design employee. The suit alleges that Bryant aided and assisted a Mattel competitor, MGA Entertainment, Inc. (MGA), during the time he was employed by Mattel, in violation of his contractual and other duties to Mattel. In September
2004, Bryant asserted counterclaims against Mattel, including counterclaims in which Bryant sought, as a putative class action representative, to invalidate Mattels Confidential Information and Proprietary Inventions Agreements with its
employees. Bryant also removed Mattels suit to the United States District Court for the Central District of California. In December 2004, MGA intervened as a party-defendant in Mattels action against Bryant, asserting that its rights to
Bratz properties are at stake in the litigation.
Separately, in November 2004, Bryant filed an action against Mattel in the
United States District Court for the Central District of California. The action sought a judicial declaration that Bryants purported conveyance of rights in Bratz was proper and that he did not misappropriate Mattel property in creating Bratz.
In April 2005, MGA filed suit against Mattel in the United States District Court for the Central District of California.
MGAs action alleges claims of trade dress infringement, trade dress dilution, false designation of origin, unfair competition, and unjust enrichment. The suit alleges, among other things, that certain products, themes, packaging, and/or
television commercials in various Mattel product lines have infringed upon products, themes, packaging, and/or television commercials for various MGA product lines, including Bratz. The complaint also asserts that various alleged Mattel acts with
respect to unidentified retailers, distributors, and licensees have damaged MGA and that various alleged acts by industry organizations, purportedly induced by
22
Mattel, have damaged MGA. MGAs suit alleges that MGA has been damaged in an amount believed to reach or exceed tens of millions of dollars and further seeks punitive damages,
disgorgement of Mattels profits and injunctive relief.
In June 2006, the three cases were consolidated in the United
States District Court for the Central District of California. On July 17, 2006, the Court issued an order dismissing all claims that Bryant had asserted against Mattel, including Bryants purported counterclaims to invalidate Mattels
Confidential Information and Proprietary Inventions Agreements with its employees, and Bryants claims for declaratory relief.
In November 2006, Mattel asked the Court for leave to file an Amended Complaint that included not only additional claims against Bryant, but also included claims for copyright infringement, Racketeer
Influenced and Corrupt Organizations (RICO) violations, misappropriation of trade secrets, intentional interference with contract, aiding and abetting breach of fiduciary duty and breach of duty of loyalty, and unfair competition, among
others, against MGA, its Chief Executive Officer Isaac Larian, certain MGA affiliates and an MGA employee. The RICO claim alleged that MGA stole Bratz and then, by recruiting and hiring key Mattel employees and directing them to bring with them
Mattel confidential and proprietary information, unfairly competed against Mattel using Mattels trade secrets, confidential information, and key employees to build their business. On January 12, 2007, the Court granted Mattel leave to
file these claims as counterclaims in the consolidated cases, which Mattel did that same day.
Mattel sought to try all of its
claims in a single trial, but in February 2007, the Court decided that the consolidated cases would be tried in two phases, with the first trial to determine claims and defenses related to Mattels ownership of Bratz works and whether MGA
infringed those works. On May 19, 2008, Bryant reached a settlement agreement with Mattel and is no longer a defendant in the litigation. In the public stipulation entered by Mattel and Bryant in connection with the resolution, Bryant agreed
that he was and would continue to be bound by all prior and future Court Orders relating to Bratz ownership and infringement, including the Courts summary judgment rulings.
The first phase of the first trial, which began on May 27, 2008, resulted in a unanimous jury verdict on July 17, 2008 in favor
of Mattel. The jury found that almost all of the Bratz design drawings and other works in question were created by Bryant while he was employed at Mattel; that MGA and Isaac Larian intentionally interfered with the contractual duties owed by Bryant
to Mattel, aided and abetted Bryants breaches of his duty of loyalty to Mattel, aided and abetted Bryants breaches of the fiduciary duties he owed to Mattel, and converted Mattel property for their own use. The same jury determined that
defendants MGA, Larian, and MGA Entertainment (HK) Limited infringed Mattels copyrights in the Bratz design drawings and other Bratz works, and awarded Mattel total damages of approximately $100 million against the defendants. On
December 3, 2008, the Court issued a series of orders rejecting MGAs equitable defenses and granting Mattels motions for equitable relief, including an order enjoining the MGA party defendants from manufacturing, marketing, or
selling certain Bratz fashion dolls or from using the Bratz name. The Court stayed the effect of the December 3, 2008 injunctive orders until further order of the Court and entered a further specified stay of the injunctive orders
on January 7, 2009.
The parties filed and argued additional motions for post-trial relief, including a request by MGA to
enter judgment as a matter of law on Mattels claims in MGAs favor and to reduce the jurys damages award to Mattel. Mattel additionally moved for the appointment of a receiver. On April 27, 2009, the Court entered an order
confirming that Bratz works found by the jury to have been created by Bryant during his Mattel employment were Mattels property and that hundreds of Bratz female fashion dolls infringe Mattels copyrights. The Court also upheld the
jurys award of damages in the amount of $100 million and ordered an accounting of post-trial Bratz sales. The Court further vacated the stay of the December 3, 2008 orders, except to the extent specified by the Courts
January 7, 2009 modification.
MGA appealed the Courts equitable orders to the Court of Appeals for the Ninth
Circuit. On December 9, 2009, the Ninth Circuit heard oral argument on MGAs appeal and issued an order staying the District Courts
23
equitable orders pending a further order to be issued by the Ninth Circuit. The Ninth Circuit opinion vacating the relief ordered by the District Court was issued on July 22, 2010. The Ninth
Circuit stated that, because of several jury instruction errors it identified, a significant portionif not allof the jury verdict and damage award should be vacated.
In its opinion, the Ninth Circuit found that the District Court erred in concluding that Mattels Invention agreement unambiguously
applied to ideas; that it should have considered extrinsic evidence in determining the application of the agreement; and if the conclusion turns on conflicting evidence, it should have been up to the jury to decide. The Ninth Circuit
also concluded that the District Judge erred in transferring the entire brand to Mattel based on misappropriated names and that the Court should have submitted to the jury, rather than deciding itself, whether Bryants agreement assigned works
created outside the scope of his employment and whether Bryants creation of the Bratz designs and sculpt was outside of his employment. The Court then went on to address copyright issues which would be raised after a retrial, since Mattel
might well convince a properly instructed jury that it owns Bryants designs and sculpt. The Ninth Circuit stated that the sculpt itself was entitled only to thin copyright protection against virtually identical works,
while the Bratz sketches were entitled to broad protection against substantially similar works; in applying the broad protection, however, the Ninth Circuit found that the lower court had erred in failing to filter out all of the
unprotectable elements of Bryants sketches. This mistake, the Court said, caused the lower court to conclude that all Bratz dolls were substantially similar to Bryants original sketches.
Judge Stephen Larson, who presided over the first trial, retired from the bench during the course of the appeal, and the case was
transferred to Judge David O. Carter. After the transfer, Judge Carter granted Mattel leave to file a Fourth Amended Answer and Counterclaims which focused on RICO, trade secret and other claims, and added additional parties, and subsequently
granted in part and denied in part a defense motion to dismiss those counterclaims. Later, on August 16, 2010, MGA asserted several new claims against Mattel in response to Mattels Fourth Amended Answer and Counterclaims, including claims
for alleged trade secret misappropriation, an alleged violation of RICO, and wrongful injunction. Mattel moved to strike and/or dismiss these claims, as well as certain MGA allegations regarding Mattels motives for filing suit. The Court
granted that motion as to the wrongful injunction claim, which it dismissed with prejudice, and as to the allegations about Mattels motives, which it struck. The Court denied the motion as to MGAs trade secret misappropriation claim and
its claim for violations of RICO.
The Court resolved summary judgment motions in late 2010. Among other rulings, the Court
dismissed both parties RICO claims; dismissed Mattels claim for breach of fiduciary duty and portions of other claims as preempted by the trade secrets act; dismissed MGAs trade dress infringement claims; dismissed
MGAs unjust enrichment claim; dismissed MGAs common law unfair competition claim; and dismissed portions of Mattels copyright infringement claim as to later generation Bratz dolls.
Trial of all remaining claims began in early January 2011. During the trial, and before the case was submitted to the jury, the Court
granted MGAs motions for judgment as to Mattels claims for aiding and abetting breach of duty of loyalty and conversion. The Court also granted a defense motion for judgment on portions of Mattels claim for misappropriation of
trade secrets relating to thefts by former Mattel employees located in Mexico.
The jury reached verdicts on the remaining
claims in April 2011. In those verdicts, the jury ruled against Mattel on its claims for ownership of Bratz-related works, for copyright infringement, and for misappropriation of trade secrets. The jury ruled for MGA on its claim of trade secret
misappropriation as to 26 of its claimed trade secrets and awarded $88.5 million in damages. The jury ruled against MGA as to 88 of its claimed trade secrets. The jury found that Mattels misappropriation was willful and malicious.
In early August 2011, the Court ruled on post-trial motions. The Court rejected MGAs unfair competition claims and also rejected
Mattels equitable defenses to MGAs misappropriation of trade secrets claim. The
24
Court reduced the jurys damages award of $88.5 million to $85.0 million. The Court awarded MGA an additional $85.0 million in punitive damages and approximately $140 million in
attorneys fees and costs. The Court entered a judgment which totaled approximately $310 million in favor of MGA.
Mattel
appealed the judgment, challenging on appeal the entirety of the District Courts monetary award in favor of MGA, including both the award of $170 million in damages for alleged trade secret misappropriation and approximately $140 million in
attorneys fees and costs. On January 24, 2013, the Ninth Circuit Court of Appeals issued a ruling on Mattels appeal. In that ruling, the Court found that MGAs claim for trade secrets misappropriation was not compulsory to any
Mattel claim and could not be filed as a counterclaim-in-reply. Accordingly, the Court of Appeals vacated the portion of the judgment awarding damages and attorneys fees and costs to MGA for prevailing on its trade secrets misappropriation
claim, totaling approximately $172.5 million. It ruled that, on remand, the District Court must dismiss MGAs trade secret claim without prejudice. In its ruling, the Court of Appeals also affirmed the District Courts award of
attorneys fees and costs under the Copyright Act. Accordingly, Mattel recorded a litigation accrual of $137.8 million during the fourth quarter of 2012 to cover these fees and costs.
On February 27, 2013, MGA filed a motion to amend its complaint to reassert the trade secret claim that the Court of Appeals ordered
dismissed without prejudice. Mattel believes that it has strong arguments that such an amendment is improper in federal court because the claim is purely one of state law and that even if amendment is allowed, or if MGA were to file the claim in
state court, the claim is barred by the statute of limitations, among other defenses, and should be dismissed without a trial.
Litigation
Related to Yellowstone do Brasil Ltda.
Yellowstone do Brasil Ltda. (formerly known as Trebbor Informática Ltda.)
was a customer of Mattels subsidiary Mattel do Brasil Ltda. when a commercial dispute arose between Yellowstone and Mattel do Brasil regarding the supply of product and related payment terms. As a consequence of the dispute, in April 1999,
Yellowstone filed a declarative action against Mattel do Brasil requesting the annulment of its security bonds and promissory notes given to Mattel as well as requesting the court to find Mattel do Brasil liable for damages incurred as a result of
Mattel do Brasils alleged abrupt and unreasonable breach of an oral exclusive distribution agreement between the parties relating to the supply and sale of toys in Brazil. Yellowstones complaint sought alleged loss of profits of
approximately $0.5 million, plus an unspecified amount of damages consisting of: (i) compensation for all investments made by Yellowstone to develop Mattel do Brasils business; (ii) reimbursement of the amounts paid by Yellowstone to
terminate labor and civil contracts in connection with the business; (iii) compensation for alleged unfair competition and for the goodwill of trade; and (iv) compensation for non-pecuniary damages.
Mattel do Brasil filed its defenses to these claims and simultaneously presented a counterclaim for unpaid accounts receivable for goods
supplied to Yellowstone in the approximate amount of $3.5 million.
During the evidentiary phase a first accounting report was
submitted by a court-appointed expert. Such report stated that Yellowstone had invested approximately $2.8 million in its business. Additionally, the court-appointed expert calculated a loss of profits compensation of approximately $1.2 million.
Mattel do Brasil challenged the report since it was not made based on the official accounting documents of Yellowstone and since the report calculated damages based only on documents unilaterally submitted by Yellowstone.
The trial court accepted the challenge and ruled that a second accounting examination should take place in the lawsuit. Yellowstone
appealed the decision but it was upheld by the appeals court.
The second court-appointed experts report submitted at
trial did not assign a value to any of Yellowstones claims and found no evidence of causation between Mattel do Brasils actions and such claims.
25
In January 2010, the trial court ruled in favor of Mattel do Brasil and denied all of
Yellowstones claims based primarily on the lack of any causal connection between the acts of Mattel do Brasil and Yellowstones alleged damages. Additionally, the court upheld Mattel do Brasils counterclaim and ordered Yellowstone
to pay Mattel do Brasil approximately $3.8 million. The likelihood of Mattel do Brasil recovering this amount was uncertain due to the fact that Yellowstone was declared insolvent and filed for bankruptcy protection. In February 2010, Yellowstone
filed a motion seeking clarification of the decision which was denied.
In September 2010, Yellowstone filed a further appeal.
Under Brazilian law, the appeal is de novo and Yellowstone restated all of the arguments it made at the trial court level. Yellowstone did not provide any additional information supporting its unspecified alleged damages. The appeals court held
hearings on the appeal in March and April 2013. A final judgment is expected in the third quarter of 2013.
Mattel believes
that it is reasonably possible that a loss in this matter could range from $0 to approximately $20 million. The high end of this range, approximately $20 million, is based on the calculation of the current amount of the damages and loss of profits,
including interest and inflation adjustments, reported in the first court-appointed examination report submitted in the lawsuit, plus attorneys fees. Mattel do Brasil may be entitled to a recovery of a legal offset of approximately $7 million,
including inflation adjustments, if it succeeds on its counterclaim. Mattel does not believe that a loss is probable for this matter and, accordingly, a liability has not been accrued as of June 30, 2013.
Mattel sells a broad variety of toy products which are grouped into three major brand categories:
Mattel Girls & Boys Brands
including Barbie
®
fashion dolls and accessories (Barbie), Polly Pocket, Little Mommy
®
, Disney Classics
®
, and
Monster High
®
(collectively Other Girls Brands), Hot Wheels
®
, Matchbox
®
, and Tyco R/C
®
vehicles and
play sets (collectively Wheels), and CARS
®
,
Radica
®
, Toy Story
®
, Max Steel
®
, WWE
®
Wrestling, Batman
®
, and games and puzzles (collectively Entertainment).
Fisher-Price Brands
including Fisher-Price
®
, Little
People
®
, BabyGear, and Imaginext
®
(collectively Core Fisher-Price), Dora the Explorer
®
, Go Diego Go!
®
,
Thomas & Friends, Mickey Mouse
®
Clubhouse, Disney Jake and the Never Land Pirates
®
, and See N Say
®
(collectively Fisher-Price Friends), and Power Wheels
®
.
American Girl
Brands
including My American Girl
®
, the historical collection, and Bitty Baby
®
. American Girl Brands products are sold directly to consumers via its catalog, website, and proprietary retail
stores. Its childrens publications are also sold to certain retailers.
Mattels operating segments are:
(i) North America, which consists of the US and Canada, (ii) International, and (iii) American Girl. The North America and International segments sell products in the Mattel Girls & Boys Brands and Fisher-Price Brands
categories, although some are developed and adapted for particular international markets.
Segment Data
The following tables present information about revenues, income, and assets by segment. Mattel does not include sales adjustments such as
trade discounts and other allowances in the calculation of segment revenues (referred to as gross sales and reconciled to net sales in Part II, Item 2 Non-GAAP Financial Measure of this Quarterly Report on Form 10-Q).
Mattel records these adjustments in its financial accounting systems at the time of sale to each customer, but the adjustments are not allocated to individual products. For this reason, Mattels chief operating decision maker uses gross sales
by segment as one of the metrics to measure segment performance. Such sales adjustments are included in the determination of segment income from operations based on the adjustments recorded in the financial accounting systems. Segment income
represents each segments operating income, while consolidated operating income represents income from operations before net interest,
26
other non-operating income, and income taxes as reported in the consolidated statements of operations. The corporate and other expense category includes costs not allocated to individual
segments, including charges related to incentive compensation, share-based payments, and corporate headquarters functions managed on a worldwide basis, and the impact of changes in foreign currency rates on intercompany transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Revenues by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
566,471
|
|
|
$
|
586,430
|
|
|
$
|
1,022,940
|
|
|
$
|
1,038,033
|
|
International
|
|
|
627,896
|
|
|
|
606,212
|
|
|
|
1,154,907
|
|
|
|
1,090,186
|
|
American Girl
|
|
|
83,757
|
|
|
|
74,050
|
|
|
|
188,707
|
|
|
|
155,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross sales
|
|
|
1,278,124
|
|
|
|
1,266,692
|
|
|
|
2,366,554
|
|
|
|
2,283,892
|
|
Sales adjustments
|
|
|
(109,015
|
)
|
|
|
(107,981
|
)
|
|
|
(201,839
|
)
|
|
|
(196,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,169,109
|
|
|
$
|
1,158,711
|
|
|
$
|
2,164,715
|
|
|
$
|
2,087,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
83,966
|
|
|
$
|
104,740
|
|
|
$
|
152,093
|
|
|
$
|
168,745
|
|
International
|
|
|
77,100
|
|
|
|
84,163
|
|
|
|
139,095
|
|
|
|
123,434
|
|
American Girl
|
|
|
(4,792
|
)
|
|
|
(6,778
|
)
|
|
|
7,163
|
|
|
|
(5,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,274
|
|
|
|
182,125
|
|
|
|
298,351
|
|
|
|
286,829
|
|
Corporate and other expense (a)
|
|
|
(61,484
|
)
|
|
|
(50,692
|
)
|
|
|
(137,730
|
)
|
|
|
(126,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
94,790
|
|
|
|
131,433
|
|
|
|
160,621
|
|
|
|
160,169
|
|
Interest expense
|
|
|
18,259
|
|
|
|
21,524
|
|
|
|
38,596
|
|
|
|
42,629
|
|
Interest (income)
|
|
|
(1,289
|
)
|
|
|
(1,941
|
)
|
|
|
(2,689
|
)
|
|
|
(3,686
|
)
|
Other non-operating (income) expense, net
|
|
|
(909
|
)
|
|
|
489
|
|
|
|
1,820
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
78,729
|
|
|
$
|
111,361
|
|
|
$
|
122,894
|
|
|
$
|
121,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Corporate and other expense includes share-based compensation expense of $13.7 million and $27.6 million for the three and six months ended June 30, 2013,
respectively, and $13.3 million and $25.2 million for the three and six months ended June 30, 2012, respectively, and severance expense of $8.0 million and $13.5 million for the three and six months ended June 30, 2013,
respectively, and $3.0 million and $8.1 million for the three and six months ended June 30, 2012, respectively.
|
Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Assets by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
645,334
|
|
|
$
|
640,205
|
|
|
$
|
694,479
|
|
International
|
|
|
850,907
|
|
|
|
863,418
|
|
|
|
807,911
|
|
American Girl
|
|
|
117,011
|
|
|
|
107,877
|
|
|
|
90,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,613,252
|
|
|
|
1,611,500
|
|
|
|
1,592,725
|
|
Corporate and other
|
|
|
126,086
|
|
|
|
115,585
|
|
|
|
99,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and inventories, net
|
|
$
|
1,739,338
|
|
|
$
|
1,727,085
|
|
|
$
|
1,691,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
The table below presents worldwide revenues by brand category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
June 30,
2013
|
|
|
June 30,
2012
|
|
|
|
(In thousands)
|
|
Worldwide Revenues by Brand Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mattel Girls & Boys Brands
|
|
$
|
792,428
|
|
|
$
|
781,644
|
|
|
$
|
1,484,598
|
|
|
$
|
1,403,886
|
|
Fisher-Price Brands
|
|
|
396,730
|
|
|
|
407,269
|
|
|
|
683,995
|
|
|
|
717,438
|
|
American Girl Brands
|
|
|
78,174
|
|
|
|
68,682
|
|
|
|
178,629
|
|
|
|
144,709
|
|
Other
|
|
|
10,792
|
|
|
|
9,097
|
|
|
|
19,332
|
|
|
|
17,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross sales
|
|
|
1,278,124
|
|
|
|
1,266,692
|
|
|
|
2,366,554
|
|
|
|
2,283,892
|
|
Sales adjustments
|
|
|
(109,015
|
)
|
|
|
(107,981
|
)
|
|
|
(201,839
|
)
|
|
|
(196,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,169,109
|
|
|
$
|
1,158,711
|
|
|
$
|
2,164,715
|
|
|
$
|
2,087,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 17, 2013, Mattel announced that its Board of Directors authorized a $500.0 million increase to
Mattels share repurchase program and declared a third quarter dividend of $0.36 per common share. The dividend is payable on September 20, 2013 to stockholders of record on August 28, 2013.
28