Mattel 2003 Annual Report Download - page 27

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Results of Continuing Operations
2003 Compared to 2002
Consolidated Results
Net income for 2003 was $537.6 million, or $1.22 per diluted share, as compared to net income of
$230.1 million, or $0.52 per diluted share, for 2002. Net income for 2003 included a pre-tax charge of
$26.3 million ($20.0 million after-tax) related to the financial realignment plan. In 2003, Mattel also recognized
pre-tax income of $7.9 million ($5.0 million after-tax) representing an adjustment resulting from updated
estimates related to amounts accrued in 1999 associated with the closure of a manufacturing facility in
Beaverton, OR. The combined effect of these items was a net after-tax charge of $15.0 million for 2003. In the
first quarter of 2002, Mattel implemented Statement of Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible Assets,and recorded a transition adjustment of $252.2 million, net of tax, as the
cumulative effect of change in accounting principles resulting from the transitional impairment test of the
American Girl Brands goodwill. In the third quarter of 2002, Mattel recorded a $27.3 million after-tax gain from
discontinued operations related to the sale of Learning Company. In 2002, Mattel also incurred a pre-tax charge
of $48.3 million ($31.9 million after-tax) related to the financial realignment plan. The combined effect of these
items was a net after-tax charge of $256.8 million for 2002.
Overall in 2003, Mattel’s results of operations benefited from changes in currency exchange rates. Net sales
in 2003 grew 2% compared to 2002, including a benefit from changes in currency exchange rates of 4 percentage
points. Earnings per share included a benefit from changes in currency exchange rates of approximately
$0.03 per diluted share. While Mattel enters into hedges to limit the effect of currency exchange rate fluctuations,
management cannot predict the impact of changes in currency exchange rates, favorable or unfavorable, on future
results of operations. See Item 7A—“Quantitative and Qualitative Disclosures About Market Risk”.
The following table provides a summary of Mattel’s consolidated results for 2003 and 2002 (in millions,
except percentage and basis point information):
For the Year
2003 2002 Year / Year Change
Amount
%ofNet
Sales Amount
%ofNet
Sales %
Basis Points
of Net Sales
Net sales .............................. $4,960.1 100.0% $4,885.3 100.0% 2 %
Gross profit ............................ $2,429.5 49.0% $2,361.0 48.3% 3 % 70
Advertising and promotion expenses ........ 636.1 12.8 552.5 11.3 15 % 150
Other selling and administrative expenses .... 1,002.9 20.3 1,050.3 21.5 (5)% (120)
Restructuring and other charges ............ 4.8 0.1 24.6 0.5 (80)% (40)
Operating income ....................... 785.7 15.8 733.6 15.0 7 % 80
Interest expense ......................... 80.6 1.6 113.9 2.3
Interest (income) ........................ (18.9) (0.4) (17.7) (0.3)
Other non-operating (income) expense, net . . . (16.8) (0.3) 15.9 0.3
Income from continuing operations before
income taxes ......................... $ 740.8 14.9% $ 621.5 12.7% 19 % 220
Net sales for 2003 were $4.96 billion, a 2% increase compared to $4.89 billion in 2002. Worldwide gross
sales for 2003 increased 1%, which included a benefit from changes in currency exchange rates of 3 percentage
points. Gross sales within the US decreased 6% from 2002 and accounted for 60% of consolidated gross sales in
2003 compared to 64% in 2002. The decline in gross sales within the US reflects the challenging retail
environment and competition in key categories. In 2003, gross sales in international markets increased 15%
compared to 2002. The growth in international gross sales included a benefit from changes in currency exchange
rates of 10 percentage points.
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