Mattel 2000 Annual Report Download - page 21

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Mattel, Inc. and Subsidiaries
Mattel’s portfolio of brands and products are grouped in the
following categories:
Girls - including Barbie® fashion dolls and accessories, collector
dolls, Cabbage Patch Kids®, Polly Pocket®, and Diva Starz™
Boys-Entertainment - including Hot Wheels®, Matchbox®, Tyco®
Electric Racing and Tyco® Radio Control (collectively “Wheels”), and
Disney, Nickelodeon®, Harry Potter™, Max Steel™ and games and
puzzles (collectively “Entertainment”)
Infant &Preschool - including Fisher-Price®, Power Wheels®,
Sesame Street®, Disney preschool and plush, Winnie the Pooh®,
Blue’s Clues®, See ‘N Say®, Magna Doodle®, and View-Master®
Direct Marketing - American Girl®, Barbie®, Wheels, and
Fisher-Price®
2000 FINANCIAL REALIGNMENT PLAN
During the third quarter of 2000, Mattel initiated a financial realign-
ment plan designed to improve gross margin; selling, general and
administrative expenses; operating profit, and cash flow. The plan
was one of the first major initiatives led by Mattel’s new chief execu-
tive officer, Robert Eckert. The financial realignment plan, together
with the disposition of Learning Company, was part of new manage-
ment’s strategic plan to focus on growing Mattel’s core brands and
lowering operating costs and interest expense. The plan will require
a total pre-tax charge estimated at approximately $250 million or
$170 million on an after-tax basis, of which approximately $100 mil-
lion represents cash expenditures and $70 million represents non-cash
writedowns. Total cash outlay will be funded from existing cash bal-
ances and internally generated cash flows from operations. During
2000, Mattel recorded a pre-tax charge of $125.2 million, approxi-
mately $84 million after-tax or $0.20 per diluted share, related to the
initial phase of the financial realignment plan. In accordance with
generally accepted accounting principles, future pre-tax implementa-
tion costs of approximately $125 million could not be accrued in 2000.
These costs will be recorded over the next two years.
The following are the major initiatives included in the financial
realignment plan:
- Reduce excess manufacturing capacity;
- Terminate a variety of licensing and other contractual arrange-
ments that do not deliver an adequate level of profitability;
- Eliminate product lines that do not meet required levels of profitability;
- Improve supply chain performance and economics;
- Eliminate approximately 350 positions at US-based headquarters
locations in El Segundo, Fisher-Price and Pleasant Company
through a combination of layoffs, elimination of open requisitions,
attrition and retirements; and
- Close and consolidate certain international offices.
Mattel incurred a $22.9 million pre-tax restructuring charge
related to the 2000 financial realignment plan. This charge, combined
with a $7.0 million adjustment to the 1999 restructuring plan, resulted
in $15.9 million of net pre-tax restructuring and other charges in 2000.
The $22.9 million restructuring charge for 2000 relates to
the elimination of positions at headquarters locations in El Segundo,
Fisher-Price and Pleasant Company, closure of certain international
offices, and consolidation of facilities. Total worldwide headcount
reduction as a result of the restructuring is approximately 500
employees, of which 340 were terminated during 2000. The compo-
nents of the restructuring charges are as follows (in millions):
Balance
Total Amounts December 31,
Charges Incurred 2000
Severance and other compensation $19 $(3) $16
Asset writedowns 2 (2) -
Lease termination costs 1 - 1
Other 1 - 1
Total restructuring charge and asset writedowns $23 $(5) $18
Under the plan, Mattel expects to generate approximately
$200 million of cost savings over the next three years. However, there
is no assurance that Mattel will be able to successfully implement all
phases of its financial realignment plan or that it will realize the
anticipated cost savings and improved cash flows.
1999 RESTRUCTURING AND NONRECURRING CHARGES
During 1999, Mattel initiated a restructuring plan for its continuing
operations and incurred certain other nonrecurring charges totaling
$281.1 million, approximately $218 million after-tax or $0.51 per
diluted share. The restructuring plan was aimed at leveraging global
resources in the areas of manufacturing, marketing and distribution,
eliminating duplicative functions worldwide and achieving improved
operating efficiencies. The plan, which was designed to reduce prod-
uct costs and overhead spending, resulted in actual cost savings of
approximately $35 million in 1999 and approximately $80 million in
2000. Total cash outlays are funded from existing cash balances and
internally generated cash from continuing operations.
The following were the major restructuring initiatives:
- Consolidation of the Infant &Preschool businesses;
- Consolidation of the domestic and international back-office functions;
- Consolidation of direct marketing operations;
- Realignment of the North American sales force;
- Termination of various international distributor contracts; and
- Closure of three higher-cost manufacturing facilities.
The termination of approximately 3,000 employees around
the world was completed during 2000. Through December 31, 2000,
a total of approximately $60 million was incurred related to employee
terminations.