Mattel 2012 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2012 Mattel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

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 vision is “creating the future of play.” Mattel’s objectives are to grow its share in the marketplace,
continue to improve its operating margins, and create long-term stockholder value. To achieve these objectives,
management has established the following 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 optimize operating margins through sustaining gross margins within the low-to-
mid 50% range in the near-term and above 50% in the long-term, and delivering on cost savings initiatives.
The third strategy is to generate significant cash flow and continue its disciplined, opportunistic, and value-
enhancing deployment.
2012 Overview
During 2012, Mattel delivered another year of consistent growth. Mattel increased its revenues by
maintaining momentum in its core brands such as Hot Wheels, American Girl, and Fisher-Price. Mattel increased
its gross margin beyond its long-term target of approximately 50% and operating income exceeded $1 billion for
the second consecutive year. Mattel also generated significant cash flow, which it deployed to create value for its
stockholders. More specifically:
• Net sales increased to $6.42 billion in 2012, up 2% from $6.27 billion in 2011.
• Gross profit as a percentage of net sales increased to 53.1% in 2012 from 50.2% in 2011. The increase
in gross profit as a percentage of net sales was driven primarily by favorable product mix, savings from
manufacturing efficiency and Operational Excellence 2.0 programs, the benefit of HIT Entertainment’s
licensing business, and price increases partially offset by higher input costs and higher customer
benefits.
• Operating income was $1.02 billion in 2012, or 15.9% of net sales, compared to the prior year’s
operating income of $1.04 billion, or 16.6% of net sales.
• Mattel’s Operational Excellence 2.0 program resulted in cost savings, before severance charges and
investments, of approximately $93 million (or approximately $77 million in net cost savings) in 2012.
The gross cost savings included approximately $53 million of structural cost savings and
approximately $40 million of legal cost savings.
• Mattel paid total annual dividends of $1.24 per share, an increase of 35% from the prior year, and
repurchased 2.3 million shares of its common stock.
27