Mattel 2002 Annual Report Download - page 27

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Net sales from continuing operations for 2002 increased 4% to $4.9 billion, from $4.7 billion in 2001. Gross
sales within the US increased 1% from 2001 and accounted for 64% of consolidated gross sales in 2002
compared to 67% in 2001. In 2002, gross sales internationally increased 12% from 2001. Excluding the favorable
impact of foreign currency exchange, international gross sales were up 11% compared to 2001. Mattel’s strategic
focus on globalization of brands is one of the primary drivers for continued growth in the International segment.
Management expects that sales growth internationally will continue to outpace US sales growth for the
foreseeable future.
Worldwide gross sales in the Girls category increased 6%, or 5% in local currency, to $2.3 billion in 2002.
Domestic sales declined by 2% and international sales increased by 18%, or 16% in local currency. Sales growth
in Barbie®internationally, Polly Pocket!®, What’s Her Face!™, and American Girl®was partially offset by
declines in US Barbie®, Diva Starz™and large dolls. The discontinuation of Cabbage Patch Kids®in 2002
contributed to the decrease in total large doll sales. Worldwide Barbie®sales were up 6% in 2002, reflecting an
increase of 16% in international sales and a decline of 2% in domestic sales. The decline in domestic sales for
Barbie®was driven by the strategic initiative to reduce shipments of adult-targeted collector and holiday dolls.
Barbie®holiday doll shipments in 2002 were approximately one-half the amount shipped in 2001. Excluding
these adult-targeted lines, domestic Barbie®sales increased 2% in 2002.
Worldwide gross sales in the Boys-Entertainment category grew 2%, to $1.3 billion. Domestic sales
remained flat with 2001, while international sales increased by 6%, or 7% in local currency. The worldwide
Wheels business increased 3% due to growth in Matchbox®products and increased international sales of Hot
Wheels®and Tyco®Radio Control brands. Domestic Wheels sales declined by 2% and international sales grew
by 13%. The worldwide Entertainment business grew 2%, reflecting strong sales from licensed properties such as
He-Man®and Masters of the Universe®, Yu-Gi-Oh!™, and SpongeBob SquarePants™lines, and games and
puzzles, which more than offset the elimination of Disney entertainment properties and a decline in Harry
Potter™sales. In July 2002, Mattel and Warner Bros. Consumer Products announced comprehensive, multi-year
agreements granting Mattel master toy licenses for several of Warner Bros.’ core franchises, including Looney
Tunes™, Baby Looney Tunes™, Batman™, Superman™and Justice League™. The agreements, which took effect
in January 2003, cover all global territories except Asia and include rights to market products based on any
related theatrical releases or television programs that are produced during the period covered by the agreements.
Worldwide gross sales in the Infant & Preschool category increased 5%, or 4% in local currency, to
$1.7 billion. Domestic sales increased by 3% and international sales were up 10%, or 7% in local currency.
Growth in sales of core Fisher-Price®and Power Wheels®products was partially offset by a decline in licensed
character brands in both domestic and international markets. Strong sales of Baby Gear, Rescue Heroes™and
Little People®lines contributed to the increase in core Fisher-Price®sales.
Gross profit, as a percentage of net sales, was 48.3% in 2002 compared to 45.8% in 2001. Gross profit was
positively impacted by savings realized from the financial realignment plan and supply chain initiatives.
Specifically, gross profit benefited from lower commodity and logistics costs, reduced manufacturing overhead
costs, lower material costs due to improved design and engineering processes, and lower product costs due to
movement of production to Mexico and Asia. In 2003, Mattel expects increases in commodity and logistics costs
may have a negative impact on its gross profit, mitigated in part or wholly by further progress in its supply chain
and procurement initiatives. Cost of sales in 2002 includes a $10.4 million financial realignment plan charge,
largely related to the closure of the Murray, Kentucky, manufacturing and distribution facilities (“North
American Strategy”). Cost of sales in 2001 includes a $28.2 million financial realignment plan charge, largely
related to the North American Strategy and termination of a licensing agreement.
Advertising and promotion expense was 11.3% of net sales for 2002, compared to 11.6% in 2001. The
decrease in 2002 compared to 2001 was largely due to lower prices charged by media companies on a cost per
rating point basis. Mattel expects advertising and promotion expense as a percentage of net sales for 2003 will
rise, reflecting a combination of media prices leveling off and Mattel’s plan for increased spending to support the
launch of several new product lines.
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