Mattel 2001 Annual Report Download - page 32

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category, growth from Max Steeland 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 Potterand Toy Story
2, Entertainment sales were up 10% in domestic markets. US Infant & Preschool segment sales increased 4%,
largely due to increased sales of core Fisher-Priceand Power Wheelsproducts, partially offset by declines in
sales of Sesame Street, Disney preschool and Winnie the Poohproducts.
International segment sales decreased by 3% in 2000 compared to 1999. Excluding the unfavorable
foreign exchange impact, sales grew by 6% in 2000 due to increased sales across all core categories, including
Barbie, Fisher-Price, Wheels and Entertainment products.
Operating profit in the US Girls segment increased by 9%, largely due to higher sales volume. The US
Boys-Entertainment segment experienced a 26% decline in operating profit, largely due to lower sales volume
and higher shipping costs. Operating profit in the US Infant & Preschool segment increased 7% due to greater
sales of relatively higher margin core Fisher-Priceproducts. The International segment operating profit
decreased 19%, largely due to unfavorable foreign exchange rates.
2000 Financial Realignment Plan
During the third quarter of 2000, Mattel initiated a financial realignment plan designed to improve gross
margin; selling and administrative expenses; operating profit; and cash flow. The financial realignment plan,
together with the disposition of Learning Company, was part of management’s strategic plan to focus on
growing Mattel’s core brands and lowering operating costs and interest expense. The plan will require a total
pre-tax charge estimated at approximately $250 million or $170 million on an after-tax basis, of which
approximately $100 million represents cash expenditures and $70 million represents non-cash writedowns.
Total cash outlay will be funded from existing cash balances and internally generated cash flows from
operations.
Under the plan, Mattel expects to generate approximately $200 million of cumulative pre-tax cost savings
over the three year duration of the plan. Mattel recognized savings of approximately $55 million in 2001 and
expects to achieve savings of approximately $65 million in 2002. However, there is no assurance that Mattel
will be able to successfully implement all phases of its financial realignment plan or that it will realize the
anticipated cost savings and improved cash flows.
Through December 31, 2001, Mattel has recorded pre-tax charges totaling $175.4 million, or
approximately $119 million on an after-tax basis, related to this plan. Of the total charge, $125.2 million
(approximately $84 million after-taxes) was recorded in 2000 and $50.2 million (approximately $35 million
after-taxes) was recorded in 2001. In accordance with generally accepted accounting principles, future pre-tax
implementation costs of approximately $75 million have not been accrued as of December 31, 2001.
Management expects these costs will be recorded over approximately the next two years.
The following are the major initiatives included in the financial realignment plan:
•Reduce excess manufacturing capacity;
•Terminate a variety of licensing and other contractual arrangements that do not deliver an adequate
level of profitability;
•Eliminate product lines that do not meet required levels of profitability;
•Improve supply chain performance and economics;
•Eliminate positions at US-based headquarters locations in El Segundo, Fisher-Price and Pleasant
Company through a combination of layoffs, elimination of open requisitions, attrition and retirements;
and
•Close and consolidate certain international offices.
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