Mattel 1998 Annual Report Download - page 28

Mattel, Inc. and Subsidiaries 26
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Cautionary Statement
Certain expectations and projections regarding the future performance
of Mattel, Inc. and its subsidiaries (“Mattel” or the “Company”) discussed
in this annual report are forward-looking and are made under the
“safe harbor” provisions of the Private Securities Litigation Reform Act
of 1995. These expectations and projections are based on currently
available competitive, financial, and economic data along with the
Company’s operating plans and are subject to certain future events
and uncertainties. Forward-looking statements can be identified by the
use of forward-looking terminology, such as may, will, should, expect,
anticipate, estimate, continue, plans, intends or other similar terminology.
Management cautions you that the following factors, among others,
could cause the Company’s actual consolidated results of operations
and financial position in 1999 and thereafter to differ significantly from
those expressed in forward-looking statements:
Marketplace Risks
- Increased competitive pressure, both domestically and internationally,
which may affect the sales of the Company’s products
- Significant changes in the buying patterns of major customers,
such as the recent shift by some retailers to just-in-time inventory
management, which may limit the Company’s ability to accurately
forecast reorders or cause a decrease in sales after related expenses
have already been incurred
- Dependence on the timely development, introduction and customer
acceptance of new products, which may affect the Company’s ability
to successfully redesign, restyle and extend existing core products
and product lines and to successfully bring new products to market
- Possible weaknesses in economic conditions, both domestically
and internationally, which may affect the sales of the Company’s
products and the costs associated with manufacturing and distributing
these products
Financing Considerations
- Currency fluctuations, which may affect the Company’s reportable
income
- Significant changes in interest rates, both domestically and interna-
tionally, which may affect the Company’s cost of financing both its
operations and investments
Merger-Related Risks
- Difficulty integrating the operations of The Learning Company, Inc.
into the Company following the proposed merger, which may
impede the Company’s ability to achieve savings or operating
synergies from the merger
Year 2000 Compliance
- Potential inability of computer systems or software products
used by the Company and/or its customers and suppliers to
properly recognize and process date-sensitive information beyond
January 1, 2000, which may result in an interruption in normal
business operations of the Company, its suppliers and customers
Other Risks
- Inability to achieve cost savings expected as part of restructuring
activities, which may result in higher than expected costs following
such restructurings
- Development of new technologies, including the Internet, which
may create new risks to the Company’s ability to protect its intel-
lectual property rights
- Changes in laws or regulations, both domestically and internationally,
including those affecting consumer products or environmental
activities or trade restrictions, which may lead to increased costs
or interruption in normal business operations of the Company
- Adverse results of litigation, governmental proceedings or
environmental matters, which may lead to increased costs or
interruption in normal business operations of the Company
Summary
You should read this analysis in conjunction with the Company’s
consolidated financial statements that begin on page 33.
Mattel designs, manufactures, and markets a broad variety
of children’s products on a worldwide basis through both sales
to retailers and direct to consumers. The Company’s business is
dependent in great part on its ability each year to redesign, restyle
and extend existing core products and product lines, to design and
develop innovative new products and product lines, and to expand
its marketing capability.
The Company plans to continue to focus on its portfolio of
brands that have fundamental play patterns and have historically had
worldwide appeal, have been sustainable, and have delivered consistent
profitability. The Company’s portfolio of brands can be grouped in
the following four categories:
Girls - including Barbie®fashion dolls and accessories, collector dolls,
software, Fashion Magic®, American Girl®, Cabbage Patch Kids®, and
Polly Pocket®
Infant and Preschool - including Fisher-Price®, Disney preschool and
plush, Power Wheels®, Sesame Street®, See ‘N Say®, Magna Doodle®,
and View-Master®
Entertainment - including Disney, Nickelodeon®, games, and puzzles
Wheels - including Hot Wheels®, Matchbox®,Tyco®Electric Racing,
and Tyco®Radio Control
Results of Operations
The following is a percentage analysis of operating results for the
past three years:
For the Year
1998 1997 1996
Net sales 100% 100% 100%
Gross profit 49.4% 49.6% 48.9%
Advertising and promotion expenses 17.0 16.1 17.2
Other selling and administrative expenses 18.5 16.5 17.0
Amortization of intangibles 0.9 0.6 0.7
Restructuring and integration charges - 5.7 -
Special charges 0.9 - -
Other expense (income), net 0.1 - -
Operating profit 12.0 10.7 14.0
Interest expense 2.3 1.9 2.2
Income before income taxes and extraordinary item 9.7% 8.8% 11.8%