Mattel 2000 Annual Report Download - page 23

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Mattel, Inc. and Subsidiaries
Direct marketing sales, which include Pleasant Company, Barbie®
collector and Fisher-Price® catalogs, increased 13% compared to last
year due to strong sales of the new American Girl® character Kit
Kittredge™, introduction of AG Mini*s™, Angelina Ballerina™ and the
Fisher-Price® and Everything Barbie® catalogs.
Gross profit, as a percentage of net sales, was 45.0% in 2000
compared to 47.5% last year. Reported cost of sales includes a
$78.6 million nonrecurring charge related to the termination of a variety
of licensing agreements, other contractual arrangements and elimination
of product lines that did not deliver an adequate level of profitability.
Excluding the nonrecurring charge, gross profit was 46.7% in 2000
compared to 47.5% a year ago due to unfavorable product mix,
unfavorable foreign exchange rates and higher shipping costs.
Excluding the $4.8 million nonrecurring charge related to the
termination of a contractual arrangement, advertising and promotion
expenses as a percentage of net sales were 14.6% compared to 14.9% in
1999. The decrease is attributable to improved efficiencies of promo-
tional spending.
Excluding the $5.9 million nonrecurring charge related to settle-
ment of certain litigation matters and the $53.1 million charge related
to termination costs for the departure of senior executives, other selling
and administrative expenses were 19.4% of net sales in 2000 compared
to 18.9% in 1999. The increase is largely due to compensation costs
incurred for the recruitment and retention of senior executives.
Other expense, net includes a $12.6 million nonrecurring
charge primarily related to the writeoff of certain noncurrent assets
and an $8.4 million charge related to losses realized on the disposition
of a portion of the stock received as part of the sale of CyberPatrol.
Excluding the nonrecurring charges, the increase in other income of
$14.1 million is due to investment and interest income.
Interest expense was $153.0 million in 2000 compared with
$131.6 million in 1999, largely due to higher borrowings necessitated
by the funding of Mattel’s Consumer Software business. In addition,
Mattel’s overall interest rate was higher due to increased market rates
and debt refinancing that occurred during the second half of the year.
Mattel’s tax rate before nonrecurring charges was 27.6%, consistent
with the targeted rate for the year.
Business Segment Results
Mattel’s reportable segments are separately managed business units
and include toy marketing and toy manufacturing. The Toy Marketing
segment is divided on a geographic basis between domestic and inter-
national. The domestic Toy Marketing segment is further divided into
US Girls, US Boys-Entertainment, US Infant &Preschool and Other.
The US Girls segment includes products such as Barbie®, Polly Pocket®
and Cabbage Patch Kids®. The US Boys-Entertainment segment
includes products in the Wheels and Entertainment categories.
The US Infant &Preschool segment includes Fisher-Price®, Disney
preschool and plush, Power Wheels®, Sesame Street® and other
preschool products. The Other segment principally sells girls specialty
products, including American Girl®, which are sold through the direct
marketing distribution channel. The International Toy Marketing seg-
ment sells products in all toy categories.
The US Girls segment sales increased by 10% in 2000 com-
pared to 1999 due to a 9% increase in sales of Barbie® products.
Within the Barbie® product line, Mattel has employed strategies
including targeting products for specific age groups, creating a new
logo and package design, and supporting retailer demand for products
in terms of earlier shipments and product offerings. The US Boys-
Entertainment segment sales decreased 4% due to a 3% decrease in
sales of Wheels products and a 7% decrease in sales of Entertainment
products. Within the Wheels category, Mattel gained market share.
However, sales fell below last year as relatively high retail inventories
were adjusted down throughout 2000. Within the Entertainment cat-
egory, growth from Max Steel™ and Mattel games were more than
offset by lower sales of movie-related toy products relative to the
1999 strong sales of Toy Story 2 products. Excluding Harry Potter™
and Toy Story 2, Entertainment sales were up 10% in domestic mar-
kets. The US Infant &Preschool segment sales increased 3%, largely
due to increased sales of core Fisher-Price® and Power Wheels® prod-
ucts, partially offset by declines in sales of Sesame Street®, Disney
preschool and Winnie the Pooh® products.
Sales in the Other segment increased 5% compared to last
year, primarily due to higher sales of American Girl® products. The
International Toy Marketing segment sales decreased by 3% compared
to last year. Excluding the unfavorable foreign exchange impact, sales
grew by 6% due to increased sales across all core categories, includ-
ing Barbie®, Fisher-Price®, Wheels and Entertainment products.
Operating profit in the US Girls segment increased by 13%,
largely due to higher sales volume. The US Boys-Entertainment seg-
ment experienced an 11% decline in operating profit, largely due to
lower sales volume and higher shipping costs. Operating profit in the
US Infant &Preschool segment increased 12% due to greater sales of
relatively higher margin core Fisher-Price® products. Operating profit
in the Other segment increased by 4%, largely due to increased direct
marketing volume, partially offset by higher operating costs to sup-
port the expansion of the direct marketing business. The International
Toy Marketing segment operating profit decreased 17%, largely due to
unfavorable foreign exchange rates.
1999 Compared to 1998
Consolidated Results
Net income from continuing operations for 1999 was $108.4 million
or $0.25 per diluted share as compared to net income from continu-
ing operations of $328.3 million or $0.76 per diluted share in 1998.
The 1999 results were negatively impacted by restructuring and other
charges totaling $281.1 million, approximately $218 million after-tax
or $0.51 per diluted share, related to the 1999 restructuring plan and
other nonrecurring charges. The 1998 results of operations were neg-
atively impacted by a $44.0 million nonrecurring charge in connection
with the voluntary recall of Power Wheels® ride-on vehicles and a
customer-related antitrust litigation settlement. The 1998 nonrecur-
ring charge of approximately $31 million after-tax impacted earnings
by $0.07 per diluted share.