Mattel 2003 Annual Report Download - page 7

Despite having many of the toy industry’s strongest brands, we cannot, however, lead alone. Our
success is dependent on a healthy and vital retail presence. In 2003, we witnessed what many
described as a price war in the toy aisle. Although maintaining affordable price points is important,
our power brands are capable of commanding a premium price because of their innovation and
quality. While we cannot set retail prices, we can lead our retail partners to enhance profitability in
their toy departments. With category management analytics, more channel-specific products and
customized promotional programs, our goal is to help retailers enjoy profitable growth. It’s good for
their business, and ours.
We will also continue our leadership position in our communities. In celebration of the 25th anniver-
sary of the Mattel Children’s Foundation in 2003, Mattel and the Foundation made a significant and
meaningful impact around the globe through millions of dollars in grants and toys, thousands of
hours volunteered and an ongoing, multi-year $25 million commitment to the Mattel Children’s
Hospital at UCLA. The ability to inspire kids’ imaginations is a powerful contribution and a philoso-
phy that is embraced by Mattel throughout the world via its gifts of time, talent and toys.
It is also important to lead the industry by example. In January of this year, the International Center
for Corporate Accountability (ICCA), which provides third-party analysis of working conditions in
Mattel manufacturing facilities, released audit results of our major suppliers in China. While voluntary
audit reports of Mattel-owned manufacturing facilities have been published since 1999, the supplier
report marks the first effort to broaden the scope of the analysis to include Mattel's major vendors.
According to Dr. S. Prakash Sethi, chairman of ICCA, with the publication of these reports, Mattel is
the first and only global consumer products company to apply a required standards system to both
its own manufacturing facilities and those of its major vendors, and to independently monitor and
publicly disclose the results.
To be a leader in our industry, we must have leaders among us. And we do. At Mattel, we continu-
ally challenge our current leaders to instill and encourage leadership qualities in their respective
teams. We accomplish that goal by applying our MATPICS competencies, which I introduced to
you in last year’s letter, as well as through programs at the Mattel Leadership Development Center,
which provides training opportunities for leaders at every level. At Mattel, it’s not enough to deliver
results. It’s just as important how those results are achieved.
It is also a priority to lead with you, our shareholders. Despite challenging sales in 2003 we contin-
ued to improve profitability, generate strong cash flow and reduce debt. Our improved profit
margins are the result of continued supply chain improvements and a sharp focus on reducing
costs. Last year, for example, we centralized and globalized our procurement activities and installed
state-of-the-art information technology to facilitate lower cost material and transportation purchas-
ing. We have continued to reduce excess manufacturing capacity and streamline our "back office"
functions. We repaid $187 million of debt last year, further reducing our debt-to-capital ratio to
23 percent, down from 52 percent three years ago.
In recognition of the company’s ability to generate strong levels of cash flow, your Board of
Directors increased the annual cash dividend from $0.05 per share in 2002 to $0.40 per share in
2003. Additionally, the Board authorized a share repurchase program, again with an eye toward
returning excess funds to shareholders. Both of these actions are consistent with the capital
investment framework that the Board approved in early 2003.
In today’s environment, leadership requires a strong and active Board of Directors to oversee and
challenge your management team. Mattel’s Board continues its commitment to using the best
practices in governance, disclosure and accountability.
Mattel is the first and
only global consumer
products company to
apply a required
standards system to
both its own
manufacturing facilities
and those of its
major vendors, and
to independently
monitor and publicly
disclose the results.
Our improved profit
margins are the result
of continued supply
chain improvements
and a sharp focus on
reducing costs.