Mattel 2010 Annual Report Download - page 33

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and the
related notes. See Item 8 “Financial Statements and Supplementary Data.”
Overview
Mattel’s objective is to continue to create long-term stockholder value by generating strong cash flow and
deploying it in a disciplined and opportunistic manner as outlined in Mattel’s capital and investment
framework. To achieve this objective, management has established three overarching strategies.
The first strategy is to deliver consistent growth by continuing the momentum in its core brands, optimizing
entertainment partnerships, building new franchises, and working to expand and leverage its international
footprint.
The second strategy is to build on the progress it has made on improving operating margins through at least
sustaining the gross margins and delivering another round of cost savings.
The third strategy is to generate significant cash flow and continue its disciplined, opportunistic, and value-
enhancing deployment.
2010 Overview
Mattel’s focus for 2010 was to build on its progress towards its long-term profitability goals, in light of what
it expected to be a challenging cost environment and a continuation of a difficult economic environment. The
three main objectives in achieving these goals included capitalizing on opportunities to increase revenues by
continuing core brand performance, while maximizing the opportunities surrounding its new Entertainment
properties, maintaining cost and expense controls, and delivering another strong year of profits and cash flow. In
2010, Mattel delivered strong financial results with solid revenue growth across its portfolio of brands and
markets. Mattel sustained gross margin at its long-term target of approximately 50%. Mattel also successfully
completed its Global Cost Leadership program, all of which resulted in an operating margin of 15.4%, which, for
the first time in several years, is within its long-term goal range of 15% to 20%. In addition, Mattel generated
significant cash flow, which it deployed to create value for its stockholders. More specifically:
• Net sales increased 8%, from $5.43 billion in 2009 to $5.86 billion in 2010.
• Gross profit, as a percentage of net sales, increased from 50.0% in 2009 to 50.5% in 2010, primarily
due to effective pricing and net cost savings related to Mattel’s Global Cost Leadership program,
partially offset by higher royalty expense as a result of increased sales of products tied to licensed
properties.
• Mattel’s Global Cost Leadership program generated year-over-year incremental gross costs savings
before severance charges of approximately $61 million during 2010 (or approximately $48 million net
of 2010 severance charges of approximately $13 million), for cumulative gross cost savings before
severance charges of approximately $225 million.
• Operating income increased from $731.2 million in 2009 to $901.9 million in 2010, primarily due to
higher sales volume and higher gross profit, partially offset by higher advertising and promotion
expenses and higher other selling and administrative expenses.
• Mattel increased its annual dividend to $0.83 per share, an increase of 11% from the prior year, and
repurchased 18.6 million shares of its common stock.
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