Mattel 2004 Annual Report Download - page 35

Other Selling and Administrative Expenses
Other selling and administrative expenses were $1.0 billion, or 20.3% of net sales, in 2003 compared to
$1.1 billion, or 21.5% of net sales, in 2002. The decrease in 2003 was primarily due to lower incentive
compensation accruals of approximately $80 million and reduced bad debt expense of approximately
$43 million, partially offset by higher employee benefit and insurance costs, spending related to continuous
improvement initiatives and the unfavorable effect of changes in currency exchange rates. The decrease in bad
debt expense was largely due to a $33.5 million writedown of the Kmart pre-bankruptcy accounts receivable in
2002. Other selling and administrative expenses in 2003 included an $8.6 million financial realignment plan
charge, largely related to streamlining back office functions and the termination of a licensing arrangement.
Other selling and administrative expenses in 2002 included a $13.3 million financial realignment plan charge,
largely related to streamlining back office functions and asset writedowns and other costs associated with the
closure of its manufacturing and distribution facilities in Murray, Kentucky (“North American Strategy”).
Non-Operating Items
Interest expense decreased from $113.9 million in 2002 to $80.6 million in 2003 due to lower average
borrowings resulting from higher cash on hand at the beginning of the year, lower short-term interest rates and
repayment of long-term debt. Other non-operating (income), net was $16.8 million in 2003, including a
$15.5 million gain from the sale of investments and a $7.8 million gain from an insurance recovery related to the
shareholder litigation related to the 1999 acquisition of the Learning Company settled in 2002, partially offset by
foreign currency transaction losses of $10.0 million. Other non-operating expense, net was $15.9 million in 2002,
including a $25.4 million charge resulting from the settlement of the shareholder litigation, partially offset by
foreign currency transaction gains of $10.5 million. Foreign currency transaction gains and losses on unhedged
intercompany loans and advances are recorded as a component of other non-operating (income) expense, net in
the period in which the exchange rate changes. See Item 8 “Financial Statements and Supplementary Data—Note
9 to the Consolidated Financial Statements” for a discussion of the shareholder litigation.
Business Segment Results
Mattel’s reportable segments are separately managed business units and are divided on a geographic basis
between domestic and international. Prior to 2003, the Domestic segment was further divided into US Girls, US
Boys—Entertainment, and US Infant & Preschool. In 2003, Mattel announced the consolidation of its US Girls
and US Boys—Entertainment segments into one segment, renamed Mattel Brands US. Additionally, Pleasant
Company, which was previously part of the US Girls segment, is now a separate segment for management
reporting purposes. The results of Pleasant Company are now reported as American Girl Brands and US Infant &
Preschool are now reported as Fisher-Price Brands US for segment reporting purposes. To facilitate the
comparison of segment results for 2004 and 2003 to 2002, segment disclosures for 2002 have been restated to
reflect these changes.
Domestic Segment
Mattel Brands US gross sales decreased 11% in 2003 compared to 2002. Within this segment, lower sales of
Barbie®, Diva Starz™, What’s Her Face!™, Wheels and Harry Potter™products were partially offset by growth
in Polly Pocket!™and ello™, and the introduction of Flavas™and the Warner Bros. properties Batman™and
Justice League™. Barbie®gross sales decreased 15% due to declines in the accessories and doll categories and
increased competition. Mattel Brands US segment income decreased 13% to $388.7 million in 2003, primarily
due to lower sales volume and increased advertising spending to support the launch of several new product lines
and its attempt to rebuild sales volume momentum in core brands, partially offset by higher gross profit.
Fisher-Price Brands US gross sales decreased 1%, due to declines in sales of Core Fisher-Price®and
Power Wheels®products, partially offset by increased sales of Fisher-Price®Friends and launches of learning-
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