Mattel 2001 Annual Report Download - page 28

levels by partnering with retailers to get the right products in the right place at the right time, lowering costs by
restructuring Mattel’s manufacturing and distribution facilities, and improving processes such as launching
fewer new SKU’s by taking advantage of multi-lingual packaging. The multi-lingual packaging provides Mattel
with increased distribution options for any given toy.
Advertising and promotion expense was 13.8% of net sales for 2001, compared to 14.7% in 2000.
Advertising and promotion expense for 2001 and 2000 includes $0.3 million and $4.8 million of charges,
respectively, largely related to exiting certain product lines. Excluding these financial realignment charges,
advertising and promotion expenses, as a percentage of net sales, declined from 14.6% in 2000 to 13.8% in
2001, largely due to lower prices charged by media companies on a cost per rating point basis. Mattel’s 2001
media plan was actually stronger than last year’s in terms of gross rating points. Mattel expects media costs for
2002 will remain at approximately the same level for the first half of the year, and will likely increase towards
the second half of the year. Beginning in 2002, advertising and promotion expenses related to certain customer
benefits will be recorded as an adjustment to net sales in accordance with Emerging Issues Task Force
(‘‘EITF’’) No. 01-09, Accounting for Consideration Given by a Vendor to a Customer. Prior years’ results will
be retroactively restated to reflect this change. See ‘‘New Accounting Pronouncements.’’
Other selling and administrative expenses were $936.1 million or 19.5% of net sales in 2001 compared to
$967.0 million or 20.7% of net sales in 2000. Other selling and administrative expenses in 2001 includes a
$22.1 million charge recorded in the fourth quarter related to the bankruptcy filing of Kmart and a $1.5 million
charge related to streamlining back office functions as part of the financial realignment plan. The $22.1 million
charge for the Kmart bankruptcy represents approximately one-half of Mattel’s outstanding pre-petition account
receivable after offsetting customer benefits, which Mattel believes it is no longer obligated to pay to Kmart
under the terms of its customer agreement. Mattel’s remaining pre-petition account receivable from Kmart, after
offsetting the reserve for bad debts and reserves for customer benefits that were not earned by Kmart, is
$36.2 million. To estimate the net realizable value of the Kmart pre-petition account receivable, management
considered the post-petition market price for the Kmart bank debt, bonds and trade receivables. Other selling
and administrative expenses for 2000 includes a $5.9 million charge related to settlement of certain litigation
matters and a $53.1 million charge related to termination costs for the departure of senior executives. Excluding
the aforementioned charges, other selling and administrative expenses declined from 19.4% of net sales in 2000
to 19.0% of net sales in 2001. The improvement in other selling and administrative expenses, excluding the
charges, is largely due to tight management of costs, savings realized from the financial realignment plan, and a
reduction in management bonuses, partially offset by increased bad debt charges.
Other expense (income), net in 2001 includes a $5.5 million loss on derivative instruments and $4.5
million of charges primarily related to asset writedowns and other costs associated with implementing the North
American Strategy. Other expense (income), net in 2000 includes $12.5 million of charges 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 these charges, other expense
(income), net decreased from income of $19.3 million in 2000 to expense of $7.4 million in 2001. The decline
was primarily due to unfavorable foreign exchange, lower investment income and increased charitable
contributions.
Interest expense was $155.1 million in 2001 compared with $153.0 million in 2000. The increase was due
to the allocation in 2000 of $36.4 million in interest to discontinued operations. In 2001, lower average
borrowing rates and lower short-term seasonal borrowings resulted in a decrease in interest expense. For 2002,
Mattel expects interest expense to decrease slightly compared to 2001, reflecting the anticipated lower average
borrowings combined with increasing short-term interest rates beginning mid-year as Mattel moves towards its
peak borrowing period for seasonal working capital financing.
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