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) as of and for the periods presented have been included.
As 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 2013 Annual Report on Form 10-K.
Accounts receivable are net of allowances for doubtful accounts of $21.4 million, $35.9 million, and $20.4 million as
of June 30, 2014, June 30, 2013, and December 31, 2013, respectively.
Inventories include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Raw materials and work in process
|
|
$
|
140,407
|
|
|
$
|
142,950
|
|
|
$
|
89,863
|
|
Finished goods
|
|
|
744,952
|
|
|
|
650,661
|
|
|
|
478,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
885,359
|
|
|
$
|
793,611
|
|
|
$
|
568,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Property, Plant, and Equipment
|
Property, plant, and equipment, net includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Land
|
|
$
|
27,666
|
|
|
$
|
26,605
|
|
|
$
|
27,555
|
|
Buildings
|
|
|
272,169
|
|
|
|
268,985
|
|
|
|
269,874
|
|
Machinery and equipment
|
|
|
709,002
|
|
|
|
680,861
|
|
|
|
673,546
|
|
Software
|
|
|
317,388
|
|
|
|
275,626
|
|
|
|
301,284
|
|
Tools, dies, and molds
|
|
|
763,490
|
|
|
|
709,723
|
|
|
|
713,749
|
|
Capital leases
|
|
|
23,921
|
|
|
|
23,271
|
|
|
|
23,271
|
|
Leasehold improvements
|
|
|
233,937
|
|
|
|
221,322
|
|
|
|
230,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,347,573
|
|
|
|
2,206,393
|
|
|
|
2,239,550
|
|
Less: accumulated depreciation
|
|
|
(1,643,140
|
)
|
|
|
(1,585,225
|
)
|
|
|
(1,580,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
704,433
|
|
|
$
|
621,168
|
|
|
$
|
659,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment are stated at cost less accumulated depreciation and amortization. Depreciation
is computed using the straight-line method over estimated useful lives of 10 to 30 years for buildings, 3 to 10 years for machinery and equipment, 3 to 7 years for software, and 10 to 20 years, not to exceed the lease term, for leasehold
improvements. Tools, dies, and molds are depreciated using the straight-line method over 3 years. Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The carrying value of property, plant, and
equipment is reviewed when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Any potential impairment identified is assessed by
7
evaluating the operating performance and future undiscounted cash flows of the underlying assets. When property is sold or retired, the cost of the property and the related accumulated
depreciation are removed from the consolidated balance sheet, and any resulting gain or loss is included in the results of operations.
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 value of a reporting unit may exceed its fair value.
The change in the carrying
amount of goodwill by operating segment for the six months ended June 30, 2014 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 a foreign currency translation impact for these operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
|
Acquisition
|
|
|
Currency
Exchange Rate
Impact
|
|
|
June 30,
2014
|
|
|
|
(In thousands)
|
|
North America
|
|
$
|
547,595
|
|
|
$
|
171,062
|
|
|
$
|
1,267
|
|
|
$
|
719,924
|
|
International
|
|
|
321,656
|
|
|
|
139,960
|
|
|
|
3,262
|
|
|
|
464,878
|
|
American Girl
|
|
|
213,988
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
213,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
1,083,239
|
|
|
$
|
311,022
|
|
|
$
|
4,505
|
|
|
$
|
1,398,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of MEGA Brands Inc.
On April 30, 2014, Mattel acquired MEGA Brands Inc., a corporation incorporated under the laws of Canada (MEGA Brands),
pursuant to the Arrangement Agreement dated as of February 27, 2014, between MEGA Brands, Mattel Overseas Operations Ltd., a corporation incorporated under the laws of Bermuda, Mattel-MEGA Holdings Inc., a corporation incorporated under the
laws of Canada (the Purchasing Subsidiary), and, with respect to certain provisions thereof, Mattel (the Arrangement Agreement). Pursuant to the terms set forth in the Arrangement Agreement, Mattel indirectly acquired,
through the Purchasing Subsidiary, 100% of the issued and outstanding common shares and warrants of MEGA Brands for total cash consideration of $454.9 million, including payment for cash acquired of $31.6 million. The acquisition of MEGA Brands will
build upon Mattels portfolio of brands by expanding into the construction building sets and arts and crafts categories.
The total
purchase consideration was allocated to the assets acquired and liabilities assumed based on their estimated fair values. As a result of the acquisition, Mattel recognized $95.0 million of identifiable intangible assets (primarily related to trade
names and existing product lines), $48.9 million of net assets acquired (which included $31.6 million of cash, $85.6 million of inventory, $33.6 million of property, plant, and equipment, $67.5 million of accounts payable and accrued liabilities,
$44.6 million of long-term debt, and $10.2 million of other net assets), and $311.0 million of goodwill, which is not deductible for tax purposes. The fair values of the identifiable intangible assets related to trade names were based on the relief
from royalty method, using Level 3 inputs within the fair value hierarchy, which included forecasted future cash flows, long-term revenue growth rates, royalty rates, and discount rates. The fair values of the identifiable intangible assets related
to existing product lines 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 discount rates.
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 is in the process of finalizing the valuation of the assets acquired and liabilities assumed. The determination of the final values of assets acquired and liabilities assumed may result in adjustments to the values presented
and a corresponding adjustment to goodwill.
Additionally, during the three and six months ended June 30, 2014, Mattel recognized
approximately $4 million of integration costs and approximately $7 million of transaction costs. 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.
8
6.
|
Other Noncurrent Assets
|
Other noncurrent assets include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Nonamortizable identifiable intangibles
|
|
$
|
517,378
|
|
|
$
|
504,241
|
|
|
$
|
504,241
|
|
Deferred income taxes
|
|
|
424,184
|
|
|
|
439,937
|
|
|
|
373,638
|
|
Identifiable intangibles (net of amortization of $77.2 million, $68.8 million, and $68.3 million, respectively)
|
|
|
261,636
|
|
|
|
182,005
|
|
|
|
176,579
|
|
Other
|
|
|
286,791
|
|
|
|
249,796
|
|
|
|
264,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,489,989
|
|
|
$
|
1,375,979
|
|
|
$
|
1,319,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the acquisition of MEGA Brands, as more fully described in Note 5 to the Consolidated
Financial StatementsGoodwill of this Quarterly Report on Form 10-Q, Mattel recognized $95.0 million of amortizable identifiable intangible assets, primarily related to trade names and existing product lines.
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. Its fair value
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. As the fair value of the asset was below the carrying value, Mattel recorded an impairment charge of approximately $14 million, which was reflected within other selling and administrative expenses in the consolidated statement
of operations for the North America and International operating segments during the second quarter of 2013.
In conjunction with the Polly
Pocket trade name impairment test, Mattel reassessed the intangible assets nonamortizable classification and determined that the nonamortizable classification could no longer be supported. During the second quarter of 2013, the Polly Pocket
trade name was reclassified as an amortizable intangible asset, and the remaining fair value of the asset is being amortized over its estimated remaining useful life.
Accrued liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Royalties
|
|
$
|
63,366
|
|
|
$
|
55,904
|
|
|
$
|
100,542
|
|
Advertising and promotion
|
|
|
52,506
|
|
|
|
9,378
|
|
|
|
76,453
|
|
Taxes other than income taxes
|
|
|
33,530
|
|
|
|
48,492
|
|
|
|
70,121
|
|
Litigation accrual
|
|
|
|
|
|
|
137,800
|
|
|
|
|
|
Other
|
|
|
332,441
|
|
|
|
332,627
|
|
|
|
393,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
481,843
|
|
|
$
|
584,201
|
|
|
$
|
640,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
9
The amended credit 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 such costs 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
agreement to calculate the ratios. Mattel was in compliance with such covenants at June 30, 2014.
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 were to default under the terms of the credit facility, its ability to meet its seasonal financing
requirements could be adversely affected.
Long-term debt includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Medium-term notes
|
|
$
|
|
|
|
$
|
50,000
|
|
|
$
|
|
|
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
|
|
|
|
500,000
|
|
|
|
500,000
|
|
2014 Senior Notes due May 2019
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100,000
|
|
|
|
1,650,000
|
|
|
|
1,600,000
|
|
Less: current portion
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
2,100,000
|
|
|
$
|
1,600,000
|
|
|
$
|
1,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2014, Mattel issued $500.0 million aggregate principal amount of 2.35% senior unsecured notes due
May 6, 2019 (2014 Senior Notes). Interest on the 2014 Senior Notes is payable semi-annually on May 6 and November 6 of each year, beginning November 6, 2014. Mattel may redeem all or part of the 2014 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 12.5 basis points.
During the second quarter
of 2014, Mattel repaid $44.6 million of long-term borrowings assumed through the acquisition of MEGA Brands.
During the fourth quarter of
2013, Mattel repaid $50.0 million of its Medium-term notes in connection with their scheduled maturities.
10.
|
Other Noncurrent Liabilities
|
Other noncurrent liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Benefit plan liabilities
|
|
$
|
191,817
|
|
|
$
|
279,005
|
|
|
$
|
193,046
|
|
Noncurrent tax liabilities
|
|
|
157,639
|
|
|
|
202,441
|
|
|
|
186,055
|
|
Other
|
|
|
168,843
|
|
|
|
155,107
|
|
|
|
161,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
518,299
|
|
|
$
|
636,553
|
|
|
$
|
540,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
11.
|
Accumulated Other Comprehensive Income (Loss)
|
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 (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2014
|
|
|
|
Derivative
Instruments
|
|
|
Defined Benefit
Pension Plans
|
|
|
Currency
Translation
Adjustments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2014
|
|
$
|
(6,794
|
)
|
|
$
|
(129,858
|
)
|
|
$
|
(297,069
|
)
|
|
$
|
(433,721
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(5,536
|
)
|
|
|
464
|
|
|
|
33,506
|
|
|
|
28,434
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
2,830
|
|
|
|
2,193
|
|
|
|
|
|
|
|
5,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in other comprehensive income
|
|
|
(2,706
|
)
|
|
|
2,657
|
|
|
|
33,506
|
|
|
|
33,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of June 30, 2014
|
|
$
|
(9,500
|
)
|
|
$
|
(127,201
|
)
|
|
$
|
(263,563
|
)
|
|
$
|
(400,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2014
|
|
|
|
Derivative
Instruments
|
|
|
Defined Benefit
Pension Plans
|
|
|
Currency
Translation
Adjustments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2013
|
|
$
|
(10,789
|
)
|
|
$
|
(131,946
|
)
|
|
$
|
(300,941
|
)
|
|
$
|
(443,676
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(4,308
|
)
|
|
|
372
|
|
|
|
37,378
|
|
|
|
33,442
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
5,597
|
|
|
|
4,373
|
|
|
|
|
|
|
|
9,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in other comprehensive income
|
|
|
1,289
|
|
|
|
4,745
|
|
|
|
37,378
|
|
|
|
43,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of June 30, 2014
|
|
$
|
(9,500
|
)
|
|
$
|
(127,201
|
)
|
|
$
|
(263,563
|
)
|
|
$
|
(400,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The following table presents the classification and amount of the reclassifications from
accumulated other comprehensive income (loss) to the consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months Ended
June 30, 2014
|
|
|
For the Three
Months Ended
June 30, 2013
|
|
|
Statements of Operations
Classification
|
|
|
(In thousands)
|
|
|
|
Derivative Instruments
|
|
|
|
Loss on foreign currency forward exchange contracts
|
|
$
|
(2,859
|
)
|
|
$
|
(318
|
)
|
|
Cost of sales
|
|
|
|
29
|
|
|
|
(8
|
)
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,830
|
)
|
|
$
|
(326
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
$
|
264
|
|
|
$
|
126
|
|
|
(a)
|
Recognized actuarial loss
|
|
|
(3,664
|
)
|
|
|
(5,146
|
)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,400
|
)
|
|
|
(5,020
|
)
|
|
|
|
|
|
1,207
|
|
|
|
1,900
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,193
|
)
|
|
$
|
(3,120
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended
June 30, 2014
|
|
|
For the Six
Months Ended
June 30, 2013
|
|
|
Statements of Operations
Classification
|
|
|
(In thousands)
|
|
|
|
Derivative Instruments
|
|
|
|
(Loss) gain on foreign currency forward exchange contracts
|
|
$
|
(5,577
|
)
|
|
$
|
813
|
|
|
Cost of sales
|
|
|
|
(20
|
)
|
|
|
(10
|
)
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,597
|
)
|
|
$
|
803
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
$
|
528
|
|
|
$
|
252
|
|
|
(a)
|
Recognized actuarial loss
|
|
|
(7,326
|
)
|
|
|
(10,292
|
)
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,798
|
)
|
|
|
(10,040
|
)
|
|
|
|
|
|
2,425
|
|
|
|
3,800
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,373
|
)
|
|
$
|
(6,240
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The amortization of prior service credit and recognized actuarial loss are 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 the impact of 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
12
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 income (loss) within stockholders equity. Currency translation adjustments resulted in a net gain of $37.4 million for the six months ended June 30, 2014, primarily due to
the strengthening of the British pound sterling, Brazilian real, and Australian dollar against the US dollar, partially offset by the weakening of the Euro. 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.
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, 2014, June 30, 2013, and
December 31, 2013, Mattel held foreign currency forward exchange contracts with notional amounts of approximately $1.43 billion, $1.43 billion, and $1.55 billion, respectively.
The following table presents Mattels derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
2,938
|
|
|
$
|
7,389
|
|
|
$
|
415
|
|
Foreign currency forward exchange contracts
|
|
Other noncurrent assets
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
3,479
|
|
|
$
|
7,389
|
|
|
$
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
4,323
|
|
|
$
|
|
|
|
$
|
1,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
7,802
|
|
|
$
|
7,389
|
|
|
$
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
Accrued liabilities
|
|
$
|
10,028
|
|
|
$
|
2,436
|
|
|
$
|
12,432
|
|
Foreign currency forward exchange contracts
|
|
Other noncurrent liabilities
|
|
|
75
|
|
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
10,103
|
|
|
$
|
2,436
|
|
|
$
|
12,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
Accrued liabilities
|
|
$
|
299
|
|
|
$
|
2,642
|
|
|
$
|
1,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
10,402
|
|
|
$
|
5,078
|
|
|
$
|
14,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
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, 2014
|
|
|
For the Three Months Ended
June 30, 2013
|
|
|
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
|
|
$
|
(5,536
|
)
|
|
$
|
(2,830
|
)
|
|
$
|
(872
|
)
|
|
$
|
(326
|
)
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30, 2014
|
|
|
For the Six Months Ended
June 30, 2013
|
|
|
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
|
|
$
|
(4,308
|
)
|
|
$
|
(5,597
|
)
|
|
$
|
7,266
|
|
|
$
|
803
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net losses of $2.8 million and $5.6 million reclassified from accumulated other comprehensive loss to the
consolidated statements of operations for the three and six months ended June 30, 2014, respectively, and 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, 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, 2014
|
|
|
For the Three
Months Ended
June 30, 2013
|
|
|
|
|
(In thousands)
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
Foreign currency forward exchange contracts
|
|
$
|
2,216
|
|
|
$
|
(3,546
|
)
|
|
Non-operating income/expense
|
Foreign currency forward exchange contracts
|
|
|
(1,085
|
)
|
|
|
(372
|
)
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,131
|
|
|
$
|
(3,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in the
Statements of Operations
|
|
|
Statements of
Operations
Classification
|
|
|
For the Six
Months Ended
June 30, 2014
|
|
|
For the Six
Months Ended
June 30, 2013
|
|
|
|
|
(In thousands)
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
Foreign currency forward exchange contracts
|
|
$
|
9,769
|
|
|
$
|
(17,321
|
)
|
|
Non-operating income/expense
|
Foreign currency forward exchange contracts
|
|
|
686
|
|
|
|
31
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,455
|
|
|
$
|
(17,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The net gains of $1.1 million and $10.5 million recognized in the consolidated statements of
operations for the three and six months ended June 30, 2014, respectively, and 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, 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.
|
Mattels financial assets and liabilities measured and reported at fair value on a recurring basis include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
7,802
|
|
|
$
|
|
|
|
$
|
7,802
|
|
Auction rate security (b)
|
|
|
|
|
|
|
|
|
|
|
31,312
|
|
|
|
31,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
7,802
|
|
|
$
|
31,312
|
|
|
$
|
39,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
10,402
|
|
|
$
|
|
|
|
$
|
10,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 security (b)
|
|
|
|
|
|
|
|
|
|
|
23,222
|
|
|
|
23,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
7,389
|
|
|
$
|
23,222
|
|
|
$
|
30,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
5,078
|
|
|
$
|
|
|
|
$
|
5,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
2,310
|
|
|
$
|
|
|
|
$
|
2,310
|
|
Auction rate security (b)
|
|
|
|
|
|
|
|
|
|
|
28,895
|
|
|
|
28,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
|
|
|
$
|
2,310
|
|
|
$
|
28,895
|
|
|
$
|
31,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
|
$
|
|
|
|
$
|
14,613
|
|
|
$
|
|
|
|
$
|
14,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
15
(b)
|
The fair value of the auction rate security 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 auction rate security measured and reported at fair value on a recurring basis
using significant Level 3 inputs:
|
|
|
|
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Balance at December 31, 2013
|
|
$
|
28,895
|
|
Unrealized gain
|
|
|
2,417
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$
|
31,312
|
|
|
|
|
|
|
Other Financial Instruments
Mattels financial instruments include cash and equivalents, accounts receivable and payable, short-term borrowings, and accrued
liabilities. The fair values of these instruments approximate their carrying values because of their short-term nature and are classified as Level 2 within the fair value hierarchy.
The estimated fair value of Mattels long-term debt, including the current portion, was $2.19 billion (compared to a carrying value of
$2.10 billion) as of June 30, 2014, $1.69 billion (compared to a carrying value of $1.65 billion) as of June 30, 2013, and $1.62 billion (compared to a carrying value of $1.60 billion) as of December 31, 2013. 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, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
(In thousands, except per share amounts)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,325
|
|
|
$
|
73,348
|
|
|
$
|
17,107
|
|
|
$
|
111,859
|
|
Less: net income allocable to participating RSUs (a)
|
|
|
(265
|
)
|
|
|
(725
|
)
|
|
|
(199
|
)
|
|
|
(1,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for basic common shares
|
|
$
|
28,060
|
|
|
$
|
72,623
|
|
|
$
|
16,908
|
|
|
$
|
110,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
338,709
|
|
|
|
346,614
|
|
|
|
339,463
|
|
|
|
345,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
0.08
|
|
|
$
|
0.21
|
|
|
$
|
0.05
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,325
|
|
|
$
|
73,348
|
|
|
$
|
17,107
|
|
|
$
|
111,859
|
|
Less: net income allocable to participating RSUs (a)
|
|
|
(270
|
)
|
|
|
(730
|
)
|
|
|
(212
|
)
|
|
|
(1,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for diluted common shares
|
|
$
|
28,055
|
|
|
$
|
72,618
|
|
|
$
|
16,895
|
|
|
$
|
110,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
338,709
|
|
|
|
346,614
|
|
|
|
339,463
|
|
|
|
345,453
|
|
Weighted average common equivalent shares arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and non-participating RSUs
|
|
|
1,935
|
|
|
|
3,810
|
|
|
|
2,131
|
|
|
|
4,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and potential common shares
|
|
|
340,644
|
|
|
|
350,424
|
|
|
|
341,594
|
|
|
|
349,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
0.08
|
|
|
$
|
0.21
|
|
|
$
|
0.05
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
(a)
|
During the three and six months ended June 30, 2014 and 2013, Mattel allocated a proportionate share of both dividends and undistributed earnings to participating RSUs.
|
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 1.5 million and 0.1 million shares were excluded from the calculation of diluted net income per common share for
the three months ended June 30, 2014 and 2013, respectively, because they were antidilutive. Nonqualified stock options and non-participating RSUs totaling 1.4 million and 0.1 million shares were excluded from the calculation of
diluted net income per common share for the six months ended June 30, 2014 and 2013, 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 2013 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,
2014
|
|
|
June 30,
2013
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Service cost
|
|
$
|
2,715
|
|
|
$
|
3,789
|
|
|
$
|
5,312
|
|
|
$
|
7,688
|
|
Interest cost
|
|
|
6,978
|
|
|
|
6,635
|
|
|
|
13,919
|
|
|
|
13,265
|
|
Expected return on plan assets
|
|
|
(8,020
|
)
|
|
|
(7,329
|
)
|
|
|
(16,023
|
)
|
|
|
(14,658
|
)
|
Amortization of prior service credit
|
|
|
(264
|
)
|
|
|
(126
|
)
|
|
|
(528
|
)
|
|
|
(252
|
)
|
Recognized actuarial loss
|
|
|
3,589
|
|
|
|
5,106
|
|
|
|
7,176
|
|
|
|
10,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,998
|
|
|
$
|
8,075
|
|
|
$
|
9,856
|
|
|
$
|
16,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2014
|
|
|
June 30,
2013
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Service cost
|
|
$
|
20
|
|
|
$
|
22
|
|
|
$
|
40
|
|
|
$
|
44
|
|
Interest cost
|
|
|
452
|
|
|
|
338
|
|
|
|
904
|
|
|
|
676
|
|
Recognized actuarial loss
|
|
|
75
|
|
|
|
40
|
|
|
|
150
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
547
|
|
|
$
|
400
|
|
|
$
|
1,094
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2014, Mattel made cash contributions totaling approximately $7
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 2013 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.
17
Compensation expense, included within other selling and administrative expenses in the
consolidated statement of operations, related to stock options and RSUs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
(In thousands)
|
|
Stock option compensation expense
|
|
$
|
1,674
|
|
|
$
|
1,609
|
|
|
$
|
4,234
|
|
|
$
|
4,218
|
|
RSU compensation expense
|
|
|
10,105
|
|
|
|
12,110
|
|
|
|
20,238
|
|
|
|
23,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,779
|
|
|
$
|
13,719
|
|
|
$
|
24,472
|
|
|
$
|
27,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014, total unrecognized compensation cost related to unvested share-based payments
totaled $67.5 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, 2014 and 2013 was $14.6 million and $106.8 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, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
(In thousands)
|
|
Design and development
|
|
$
|
51,562
|
|
|
$
|
47,411
|
|
|
$
|
101,059
|
|
|
$
|
95,384
|
|
Identifiable intangible asset amortization
|
|
|
7,622
|
|
|
|
2,928
|
|
|
|
10,253
|
|
|
|
5,731
|
|
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 other non-operating income (expense), 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, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
(In thousands)
|
|
Operating income
|
|
$
|
7,722
|
|
|
$
|
3,235
|
|
|
$
|
15,791
|
|
|
$
|
14,115
|
|
Other non-operating income (expense), net
|
|
|
8
|
|
|
|
(1,054
|
)
|
|
|
(924
|
)
|
|
|
(922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transaction gains
|
|
$
|
7,730
|
|
|
$
|
2,181
|
|
|
$
|
14,867
|
|
|
$
|
13,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mattels benefit for income taxes was $40.9 million for the six months ended June 30, 2014, as compared to a
provision for income taxes of $11.0 million for the six months ended June 30, 2013. During the three and six months ended June 30, 2014, Mattel recognized net discrete tax benefits of $40.1 million and $36.4 million, respectively,
primarily related to reassessments of prior years tax liabilities based on the status of audits and tax filings in various jurisdictions around the world, settlements, and enacted tax law changes. 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 audits and tax filings in various
jurisdictions around the world, settlements, and enacted tax law changes.
18
In the first quarter of 2014, Mattel adopted Accounting Standards Update (ASU)
2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
, which generally requires an unrecognized tax benefit, or a portion of an unrecognized tax
benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position or the applicable tax law does not require the entity to use, and the
entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. Mattel reclassified unrecognized
tax benefits of approximately $44 million, primarily recorded within other noncurrent liabilities, against its noncurrent deferred tax assets upon adoption in the first quarter of 2014. There was no impact on Mattels operating results.
In the normal course of business, Mattel is regularly audited by federal, state, and foreign tax authorities. In May 2014, the IRS completed
its audit of Mattels 2010 and 2011 federal income tax returns. Additionally, the statutes of limitations lapsed with respect to other domestic and foreign jurisdictions. As a result of these events, Mattel recognized net discrete tax benefits
of $40.1 million during the three months ended June 30, 2014.
Based on the current status of federal, 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 $38 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 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.
19
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 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.
20
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 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.
On August 11, 2011, 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
approximately $138 million during the fourth quarter of 2012 to cover these fees and costs.
Because multiple claimants asserted rights to
the attorneys fees portion of the judgment, on February 13, 2013, Mattel filed a motion in the district court for orders permitting Mattel to interplead the proceeds of the judgment and releasing Mattel from liability to any claimant
based on Mattels payment of the judgment.
On February 27, 2013, MGA filed a motion for leave to amend its prior complaint in
the existing federal court lawsuit so that it could reassert its trade-secrets claim. Mattel opposed that motion. On December 17, 2013, the district court denied MGAs motion for leave to amend and entered an order dismissing MGAs
trade-secrets claim without prejudice. Also on December 17, 2013, following a settlement between MGA and certain insurance carriers, the district court denied Mattels motion for leave to interplead the proceeds of the judgment.
On December 21, 2013, a stipulation regarding settlement with insurers and payment of judgment was filed in the district court, which
provided that (i) Mattel would pay approximately $138 million, including accrued interest, in full satisfaction of the copyright fees judgment, (ii) all parties would consent to entry of an order exonerating and discharging the appeal bond
posted by Mattel, and (iii) MGAs insurers would dismiss all pending actions related to the proceeds of the copyright fees judgment, including an appeal by Evanston Insurance Company in an action against Mattel that was pending in the
Ninth Circuit. On December 23, 2013, Mattel paid the copyright fees judgment in the total sum, including interest, of approximately $138 million. On December 26, 2013, the court entered an order exonerating and discharging the appeal bond
posted by Mattel, and on December 27, 2013, MGA filed an acknowledgment of satisfaction of judgment. On December 30, 2013, Evanston Insurance Companys appeal in its action against Mattel was dismissed.
On January 13, 2014, MGA filed a new, but virtually identical, trade-secrets claim against Mattel in Los Angeles County Superior Court.
Mattel was served with the complaint on January 23, 2014. In its complaint, MGA purports to seek damages in excess of $1 billion. Mattel believes that MGAs claim should be barred as a matter of law, and intends to vigorously defend
against it. Accordingly, Mattel believes that the risk that Mattel will incur a loss on this claim is remote, and therefore, a liability has not been accrued as of June 30, 2014.
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 $1 million (historical value), 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.
21
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 $4 million (historical value).
During the
evidentiary phase a first accounting report was submitted by a court-appointed expert. Such report stated that Yellowstone had invested approximately $3 million in its business (historical value). Additionally, the court-appointed expert calculated
a loss of profits compensation of approximately $1 million (historical value). 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.
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 $4 million
(historical value). 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
was 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. On July 26, 2013, the appeals court awarded Yellowstone approximately $17 million in damages, as adjusted for inflation and interest. The appeals court also awarded Mattel approximately $8 million on its counterclaim, as adjusted
for inflation. On August 2, 2013, Mattel filed a motion for clarification since the written decision contained clear errors in terms of amounts awarded and interest and inflation adjustments. Mattels motion also asked the court to decide
whether Yellowstones award could be offset by the counterclaim award, despite Yellowstones status as a bankrupt entity. Yellowstone also filed a motion for clarification on August 5, 2013. A decision on the clarification motions is
expected in the third quarter of 2014. Mattel intends to appeal the appeals court decision to the Superior Court based on both procedural and substantive grounds.
Mattel believes that it is reasonably possible that a loss in this matter could range from $0 to approximately $22 million. The high end of
this range, approximately $22 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 offset its counterclaim award of approximately $9 million, current amount including inflation adjustment, against such loss. The existence of pending motions for clarification
filed by both parties and the resulting clarification decision expected to be issued in the third quarter of 2014, as well as the procedural aspects of an appeal to the Superior Court, adds some uncertainty to the final outcome of the matter. Mattel
is awaiting the outcome of the clarification decision before it files an appeal with the Superior Court. Mattel believes, however, that it has valid legal grounds for appeal of the appeals court decision and does not believe that a loss is probable
for this matter. Accordingly, a liability has not been accrued as of June 30, 2014. Mattel may be required by the trial court to place a bond or the full amount of the damage award in escrow pending an appeal decision by the Superior Court.
Mattel, through its subsidiaries, sells a broad variety of toy products which are grouped into four major brand categories,
including the introduction of the Construction and Arts & Crafts brand category in the second quarter of 2014:
Mattel
Girls & Boys Brands
including Barbie
®
fashion dolls and accessories (Barbie), Monster High
®
, Disney
Classics
®
, Ever After High
®
, Little Mommy
®
, and Polly Pocket (collectively
Other Girls), Hot Wheels
®
and Matchbox
®
vehicles and play sets (collectively Wheels), and CARS
®
, Disney Planes, Radica
®
, Toy Story
®
, Max Steel
®
, WWE
®
Wrestling, Batman
®
, and games and puzzles (collectively
Entertainment).
Fisher-Price Brands
including
Fisher-Price
®
, Little People
®
, BabyGear, Laugh & Learn
®
, and
Imaginext
®
(collectively Core Fisher-Price), Thomas & Friends
®
, Dora the Explorer
®
, Mickey Mouse
®
Clubhouse, and Disney Jake and the Never Land Pirates
®
(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.
Construction and Arts & Crafts Brands
including MEGA BLOKS
®
,
RoseArt
®
, and Board Dudes
®
.
22
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, Fisher-Price Brands, and Construction and Arts & Crafts 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 I, 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, other non-operating (income) expense, 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, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
(In thousands)
|
|
Revenues by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
513,463
|
|
|
$
|
566,471
|
|
|
$
|
954,894
|
|
|
$
|
1,022,940
|
|
International
|
|
|
569,936
|
|
|
|
627,896
|
|
|
|
1,059,175
|
|
|
|
1,154,907
|
|
American Girl
|
|
|
87,731
|
|
|
|
83,757
|
|
|
|
198,289
|
|
|
|
188,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross sales
|
|
|
1,171,130
|
|
|
|
1,278,124
|
|
|
|
2,212,358
|
|
|
|
2,366,554
|
|
Sales adjustments
|
|
|
(108,878
|
)
|
|
|
(109,015
|
)
|
|
|
(203,929
|
)
|
|
|
(201,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,062,252
|
|
|
$
|
1,169,109
|
|
|
$
|
2,008,429
|
|
|
$
|
2,164,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
39,497
|
|
|
$
|
83,966
|
|
|
$
|
88,220
|
|
|
$
|
152,093
|
|
International
|
|
|
30,854
|
|
|
|
77,100
|
|
|
|
62,334
|
|
|
|
139,095
|
|
American Girl
|
|
|
(1,263
|
)
|
|
|
(4,792
|
)
|
|
|
7,981
|
|
|
|
7,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,088
|
|
|
|
156,274
|
|
|
|
158,535
|
|
|
|
298,351
|
|
Corporate and other expense (a)
|
|
|
(68,080
|
)
|
|
|
(61,484
|
)
|
|
|
(151,309
|
)
|
|
|
(137,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,008
|
|
|
|
94,790
|
|
|
|
7,226
|
|
|
|
160,621
|
|
Interest expense
|
|
|
18,965
|
|
|
|
18,259
|
|
|
|
36,211
|
|
|
|
38,596
|
|
Interest (income)
|
|
|
(2,186
|
)
|
|
|
(1,289
|
)
|
|
|
(3,465
|
)
|
|
|
(2,689
|
)
|
Other non-operating (income) expense, net
|
|
|
(1,400
|
)
|
|
|
(909
|
)
|
|
|
(1,728
|
)
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before income taxes
|
|
$
|
(14,371
|
)
|
|
$
|
78,729
|
|
|
$
|
(23,792
|
)
|
|
$
|
122,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Corporate and other expense includes severance and other termination-related costs of $12.6 million and $34.1 million for the three and six months ended June 30, 2014, respectively, and $8.0 million
and $13.5 million for the three and six months ended June 30, 2013, respectively, and share-based compensation expense of $11.8 million and $24.5 million for the three and six months ended June 30, 2014, respectively, and
$13.7 million and $27.6 million for the three and six months ended June 30, 2013, respectively.
|
Segment
assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
December 31,
2013
|
|
|
|
(In thousands)
|
|
Assets by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
700,968
|
|
|
$
|
645,334
|
|
|
$
|
723,886
|
|
International
|
|
|
835,707
|
|
|
|
850,907
|
|
|
|
920,770
|
|
American Girl
|
|
|
135,395
|
|
|
|
117,011
|
|
|
|
100,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,672,070
|
|
|
|
1,613,252
|
|
|
|
1,745,094
|
|
Corporate and other
|
|
|
92,147
|
|
|
|
126,086
|
|
|
|
83,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and inventories, net
|
|
$
|
1,764,217
|
|
|
$
|
1,739,338
|
|
|
$
|
1,828,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The table below presents worldwide revenues by brand category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
June 30,
2014
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Worldwide Revenues by Brand Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mattel Girls & Boys Brands
|
|
$
|
688,977
|
|
|
$
|
792,428
|
|
|
$
|
1,345,838
|
|
|
$
|
1,484,598
|
|
Fisher-Price Brands
|
|
|
328,766
|
|
|
|
396,730
|
|
|
|
600,209
|
|
|
|
683,995
|
|
American Girl Brands
|
|
|
83,146
|
|
|
|
78,174
|
|
|
|
189,084
|
|
|
|
178,629
|
|
Construction and Arts & Crafts Brands
|
|
|
61,600
|
|
|
|
|
|
|
|
61,600
|
|
|
|
|
|
Other
|
|
|
8,641
|
|
|
|
10,792
|
|
|
|
15,627
|
|
|
|
19,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross sales
|
|
|
1,171,130
|
|
|
|
1,278,124
|
|
|
|
2,212,358
|
|
|
|
2,366,554
|
|
Sales adjustments
|
|
|
(108,878
|
)
|
|
|
(109,015
|
)
|
|
|
(203,929
|
)
|
|
|
(201,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,062,252
|
|
|
$
|
1,169,109
|
|
|
$
|
2,008,429
|
|
|
$
|
2,164,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
New Accounting Pronouncements
|
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09,
Revenue from Contracts with
Customers (Topic 606),
which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605,
Revenue Recognition,
and most industry-specific guidance. The core principle of the guidance is that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance
establishes a five-step model to achieve that core principle and also requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 will be effective for
interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted. Mattel is currently evaluating the impact of the adoption of ASU 2014-09 on its operating results and financial position.
In June 2014, the FASB issued ASU 2014-12,
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period
, which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 will be
effective for interim and annual reporting periods beginning after December 15, 2015. Early application is permitted. Mattel is currently evaluating the impact of the adoption of ASU 2014-12 on its operating results and financial position.
On July 17, 2014, Mattel announced that its Board of Directors declared a third quarter dividend of $0.38 per common
share. The dividend is payable on September 19, 2014 to stockholders of record on August 27, 2014.
24