Mattel 2008 Annual Report Download - page 31

2009 and Beyond
Management expects the unfavorable economic conditions experienced in 2008 to continue into 2009.
Management also expects Mattel’s revenues to be under pressure in 2009 as a result of retail softness driven by a
continued pull-back in consumers’ willingness to spend and retailers’ desire to reduce inventories, weakening
foreign exchange in international markets, and fewer entertainment-related products in 2009. As a result, Mattel
is managing its business based on realistic revenue assumptions and taking actions intended to improve
profitability and strengthen its balance sheet:
• A modest price increase for Mattel’s spring 2009 product line was initiated in 2008;
• Mattel continues to renegotiate product costs with vendors;
• Mattel is evaluating reductions to the number of stock keeping units (“SKUs”) it offers;
• Mattel is reassessing its advertising spending and strategy with the expectation that 2009 advertising
expense will be at the low end of its historical range of 11 to 13 percent; and
• Mattel initiated its Global Cost Leadership Program in 2008, which includes a global reduction in its
professional workforce of approximately 1,000 people implemented in November 2008, a coordinated
efficiency strategic plan that includes structural changes designed to lower costs and improve
efficiencies, and additional procurement initiatives designed to fully leverage Mattel’s global scale. This
program is expected to generate approximately $90 million to $100 million of net cost savings in 2009,
and approximately $180 million to $200 million of cumulative net cost savings by the end of 2010.
Management expects to focus on profitability and margins and conserve cash in 2009. As a result, Mattel is
planning to tightly manage its capital expenditures in 2009 to a level that is more consistent with its levels of
capital expenditures in 2003 through 2007. In addition, given the current volatile global economic environment,
Mattel is prioritizing protecting Mattel’s dividend to shareholders and minimizing strategic acquisitions and
share repurchases in 2009.
Results of Operations
2008 Compared to 2007
Consolidated Results
Net sales for 2008 were $5.92 billion, a 1% decrease as compared to $5.97 billion in 2007, with no impact
from changes in currency exchange rates. Net income for 2008 was $379.6 million, or $1.05 per diluted share, as
compared to net income of $600.0 million, or $1.54 per diluted share, for 2007. Net income for 2007 was
positively impacted by net tax benefits of $42.0 million as a result of reassessments of tax exposures based on the
status of current audits in various jurisdictions around the world, including settlements, partially offset by
enacted tax law changes.
Gross profit, as a percentage of net sales, decreased to 45.4% in 2008 from 46.5% in 2007. The decrease in
gross profit was primarily due to higher product costs driven by higher commodities, labor, and product testing
costs, along with appreciating Asian currencies (collectively, “input costs”), higher costs of distribution, and mix,
partially offset by the benefit of price increases, favorable changes in currency exchange rates, and lower product
recall costs as compared to 2007.
Income before income taxes as a percentage of net sales declined to 8.2% in 2008 from 11.8% in 2007.
Contributing to this decline were lower gross margins, higher advertising and promotion expenses, and higher
other selling and administrative expenses, which were all impacted by lower sales. The increase in other selling
and administrative expense in 2008 was primarily due to incremental legal and settlement related costs of
approximately $52 million, the impact of foreign exchange rates, and higher bad debt expense. Additionally,
interest expense increased in 2008 due to higher average borrowings, partially offset by lower average interest
rates and interest income decreased in 2008 due to lower average interest rates, partially offset by higher average
invested cash balances.
27