Mattel 2002 Annual Report Download - page 26

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financial realignment plan and a $5.5 million after-tax charge related to loss on derivative instruments. Included
in the reported results for 2001 was a pre-tax goodwill amortization charge of $46.1 million ($34.7 million after-
tax). The combined effect of these items resulted in an after-tax charge totaling $75.4 million.
Mattel faced several challenges during 2002, in its largest market, the US, including an uncertain retail
environment, weak consumer confidence, higher unemployment, labor unrest at West Coast ports and the threat
of continued terrorism and war. These factors caused most of Mattel’s customers to have actual sales
performance below expectations and several customers announced store closures and reorganization plans.
Mattel improved its performance despite these challenges by executing four strategic priorities: (i) strengthening
core brand momentum; (ii) executing the financial realignment plan and cutting costs; (iii) improving supply
chain performance; and (iv) developing people. As retailers continued to focus on just-in-time inventory
management, Mattel improved the alignment of its shipment of product to retailers with consumer demand. This
strategy resulted in a higher proportion of US shipments occurring in the second half of the year when consumer
demand peaks. As in 2002, Mattel anticipates that this initiative will put downward pressure on first half 2003
US shipments, but should have no impact on full year sales. Additionally, as part of the financial realignment
plan, Mattel lowered costs by closing and consolidating certain of its manufacturing and distribution facilities
and reducing headcount at its US-based headquarters locations.
Mattel expects that the challenging retail and consumer environment will likely continue in 2003. To
optimize its business and mitigate the impact of the aforementioned challenges, Mattel intends to continue its
emphasis in 2003 on the following strategic initiatives:
•Core brands—focusing on traditional core brand categories, extending product lines, initiating core brand
promotional programs and targeting profitable licensing arrangements.
•Channels—strengthening relationships with retailers, providing quality service to customers and
optimizing its supply chain.
•Costs—controlling costs to help mitigate the impact of anticipated rising commodity, transportation,
employee benefits, and insurance costs.
•Cash—generating and opportunistically deploying cash using a disciplined approach.
The following table provides a comparison of the reported results for 2002 and 2001 along with charges
related to the financial realignment plan, 2001 goodwill amortization and other nonrecurring charges (in
millions):
For the Year
2002 2001
Reported
Results Charges
Reported
Results
Charges &
Goodwill
Net sales ................................................ $4,885.3 $ — $4,687.9 $ —
Grossprofit .............................................. $2,361.0 $(10.4) $2,148.9 $ (28.2)
Advertising and promotion expenses .......................... 552.5 — 543.6 0.3
Other selling and administrative expenses ...................... 1,050.3 13.3 964.2 6.0
Amortization of goodwill ................................... — — 46.1 46.1
Restructuring and other charges .............................. 24.6 24.6 15.7 15.7
Operating income ......................................... 733.6 (48.3) 579.3 (96.3)
Interest expense ........................................... 113.9 — 155.1 —
Interest (income) .......................................... (17.7) — (15.5) —
Other non-operating expense, net ............................. 15.9 — 9.7 5.5
Income from continuing operations before income taxes ........... $ 621.5 $(48.3) $ 430.0 $(101.8)
17