Mattel 2011 Annual Report Download - page 47

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Cost Savings Programs
During 2008, Mattel initiated the first phase of its cost savings program, Global Cost Leadership, which was
designed to improve operating efficiencies and leverage Mattel’s global scale to improve profitability and
operating cash flows. The major initiatives within the Global Cost Leadership program included:
• A global reduction in Mattel’s professional workforce, which resulted in severance and other
termination-related charges of approximately $13 million and approximately $32 million during 2010
and 2009, respectively.
• A coordinated efficiency strategic plan that included structural changes designed to lower costs and
improve efficiencies; for example, offshoring and outsourcing certain back office functions, and
additional clustering of management in international markets.
• Procurement initiatives designed to fully leverage Mattel’s global scale in areas such as creative agency
partnerships, legal services, and distribution, including ocean carriers and over-the-road freight
vendors.
The Global Cost Leadership program was intended 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. Mattel exceeded its 2009 goal by realizing approximately $164 million of gross cost savings before
severance charges of approximately $32 million (or approximately $132 million in net cost savings). Of the gross
cost savings realized in 2009, approximately $88 million was reflected within other selling and administrative
expenses, approximately $62 million within gross profit, and approximately $14 million within advertising and
promotion expenses.
In addition, Mattel exceeded its 2010 goal by realizing approximately $61 million of year-over-year
incremental gross cost savings before severance charges of approximately $13 million (or approximately $48
million in net cost savings), for cumulative gross cost savings before severance charges of approximately $225
million. Of the gross cost savings realized in 2010, approximately $27 million was reflected within gross profit,
approximately $20 million within other selling and administrative expenses, and approximately $14 million
within advertising and promotion expenses.
During 2011, Mattel initiated the second phase of its cost savings program, Operational Excellence 2.0,
which currently targets additional cumulative cost savings of approximately $175 million by the end of 2012.
The cost savings are expected to include a reduction of approximately $75 million in legal costs, which will
lower other selling and administrative expenses, and approximately $100 million of structural cost savings
executed through a handful of important initiatives, which will be reflected in gross profit, advertising and
promotion expenses, and other selling and administrative expenses. The major initiatives within the Operational
Excellence 2.0 program include:
• The creation of global brand teams and reorganization to a North America division,
• Additional procurement initiatives designed to fully leverage Mattel’s global scale,
• SKU efficiency, and
• Packaging optimization.
During 2011, Mattel realized Operational Excellence 2.0 gross cost savings before severance charges and
investments of approximately $94 million (or approximately $71 million in net cost savings). The gross cost
savings included approximately $53 million of structural cost savings and approximately $41 million of legal
cost savings. Of the gross cost savings realized in 2011, approximately $67 million was reflected within other
selling and administrative expenses, approximately $15 million within gross profit, and approximately $12
million within advertising and promotion expenses. Mattel continues to be on track to realize $175 million in
sustainable cumulative savings by the end of 2012.
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