EL SEGUNDO, Calif., Feb. 3 -- Mattel, Inc. today reported 2002 full year and fourth quarter financial results. For the year, excluding non-recurring charges, income was $486.9 million, or $1.10 per share, versus last year's income of $386.3 million, or $0.89 per share, excluding goodwill amortization. Included in full-year income is a pre-tax charge of $25.4 million for the settlement of shareholder litigation related to the 1999 acquisition of The Learning Company. The company reported GAAP (Generally Accepted Accounting Principles) net income of $230.1 million, or $0.52 per share, compared to last year's net income of $298.9 million, or $0.68 per share.
Full-Year Highlights
- Worldwide net sales up 4 percent;
- International gross sales up 12 percent; 11 percent in local currency;
- Worldwide gross sales for core brands: Barbie(R) up 6 percent; Hot Wheels(R) up 3 percent; American Girl(R) up 3 percent; and core Fisher-Price(R) up 9 percent;
- Gross margin improvement of 210 basis points of net sales; SG&A increased by 90 basis points of net sales;
- Operating income up 14 percent;
- Earnings per share, excluding charges, of $1.10 vs. prior year of $0.89; and
- GAAP earnings per share of $0.52 vs. prior year of $0.68.
Fourth Quarter Highlights- Worldwide net sales up 7 percent;
- International gross sales up 11 percent; 8 percent in local currency;
- Worldwide gross sales for core brands: Barbie(R) up 17 percent; Hot Wheels(R) up 5 percent; American Girl(R) down 1 percent; and core Fisher-Price(R) up 8 percent;
- Gross margin improvement of 220 basis points of net sales; SG&A increased by 70 basis points of net sales;
- Operating income up 14 percent;
- Earnings per share, excluding charges, of $0.43 vs. prior year of $0.35; and
- GAAP earnings per share of $0.42 vs. prior year of $0.31.
Included in the GAAP results for the year are a $27.3 million after-tax gain from discontinued operations related to Gores Technology Group's sale of certain operating divisions of The Learning Company, a one-time transition charge of $252.2 million, after-tax, recorded as the cumulative effect of change in accounting principles resulting from the transitional impairment test of the Pleasant Company goodwill and a $31.9 million non-recurring, after-tax charge related to the financial realignment plan.
For the year, net sales were $4.89 billion, a 4 percent increase from $4.69 billion last year. Operating income, excluding charges, was up 14 percent at $783.7 million. On a regional basis, full-year gross sales increased 1 percent in the U.S., and in international markets, full-year gross sales were up 12 percent, or 11 percent in local currency.
For the fourth quarter, excluding non-recurring charges, income was $190.3 million, or $0.43 per share, versus last year's income of $154.9 million, or $0.35 per share, excluding goodwill amortization. Included in income for the fourth quarter is a pre-tax charge of $25.4 million for the settlement of shareholder litigation related to the 1999 acquisition of The Learning Company. Including non-recurring charges, GAAP fourth quarter net income was $186.1 million, or $0.42 per share, compared to last year's net income of $138.0 million, or $0.31 per share. Fourth quarter net sales were $1.70 billion, up 7 percent, compared to last year's fourth quarter. Operating income, excluding charges, was up 14 percent at $291.1 million. During the fourth quarter, gross sales in the U.S. increased 6 percent, while international gross sales increased 11 percent, or 8 percent in local currency.
"I am very pleased with the company's performance in 2002. Despite the West Coast port dispute and a very challenging retail environment, we were able to keep our focus and optimize results through sound execution of our strategies," said Robert A. Eckert, chairman and chief executive officer of Mattel. "While we clearly had a strong year, we see more opportunities to improve our performance as we look ahead, but we also see a continuation of the challenging business environment."
The company's long-term guidance remains unchanged with revenues expected to grow moderately in the mid-single-digit range and EPS growth to be in the low double-digits at the low end of the range to mid-teens at the high end of the range over the planning horizon.
Girls
For the year, the Girls division achieved worldwide gross sales of $2.31 billion, an increase of 6 percent, with performance driven by international growth in the Barbie® brand, as well as growth in the Polly Pocket!® and American Girl® brands. This growth was partially offset by declines in the large doll category, including the discontinuation of the Cabbage Patch Kids® line. International Barbie® sales increased double- digits while domestic sales declined slightly, consistent with the company's strategy to reduce shipments of adult-targeted collector and holiday dolls.
For the fourth quarter, the Girls division realized worldwide gross sales of $838.4 million, a 10 percent increase, which included a 17 percent increase in Barbie® sales. American Girl® sales declined 1 percent for the quarter.
Boys-Entertainment
Full year, worldwide gross sales for the Boys-Entertainment division, which consists of the Wheels and Entertainment categories, were up 2 percent to $1.30 billion. The Wheels category achieved a 3 percent increase in worldwide sales, driven by strong international sales. The Entertainment category achieved a worldwide sales increase of 2 percent, with strong sales of the He-Man® and Masters of the Universe®, Yu-Gi-Oh!(TM) and SpongeBob(TM) SquarePants lines offsetting sales declines in the Harry Potter(TM) and Disney entertainment businesses.
For the fourth quarter, worldwide gross sales for the Boys-Entertainment division decreased by 3 percent to $418.1 million, with sales in the Wheels category declining by 2 percent and Entertainment sales down by 4 percent. Declines in sales of Tyco® R/C and Harry Potter(TM) more than offset gains in Hot Wheels®, Matchbox® and other entertainment categories.
Infant and Preschool
Full year, worldwide gross sales for the Infant and Preschool division, which includes the Fisher-Price®, Sesame Street® and Disney brands, were $1.70 billion, up 5 percent. Worldwide sales of the core Fisher-Price® brand increased 9 percent, bolstered by strong sales in the Babygear(TM), Rescue Heroes(TM) and Little People® lines.
For the fourth quarter, the Infant and Preschool division achieved a 14 percent increase to $548.7 million in worldwide gross sales, with core Fisher-Price® brands up 8 percent.
Financial Realignment
Mattel recorded pre-tax charges of $48.3 million in the year as part of its $250 million financial realignment plan. The full year charges are largely related to the closure of the company's North American distribution and manufacturing facilities and international offices and the streamlining of back office functions. These charges are included in Cost of Sales ($10.4 million), Other Selling and Administrative Expenses ($8.1 million), Restructuring and Other Charges ($24.6 million) and Other Expense, Net ($5.2 million) in the consolidated statement of operations. Since the announcement of the plan in September 2000, Mattel has recorded $223.7 million in pre-tax charges. The company is on target to deliver initial cumulative cost savings of at least $200 million from the financial realignment plan by year-end 2003.
Mattel recorded pre-tax charges of $7.2 million in the quarter as part of the financial realignment plan. The fourth quarter charges are largely related to the closure of the company's North American distribution and manufacturing facilities and the streamlining of back office functions. These charges are included in Cost of Sales ($1.7 million), Other Selling and Administrative Expenses ($2.8 million), Restructuring and Other Charges ($2.9 million) and Other Expense, Net ($0.2 million of income) in the consolidated statement of operations.
Capital and Investment Framework
To guide its capital deployment decisions going forward, with a goal of maximizing shareholder value, the company's Board of Directors has established a capital and investment framework. Assuming the company continues to generate strong cash flow, it plans to invest within the following framework:
To maintain $800 million to $1 billion in year-end cash available to fund a substantial portion of seasonal working capital.
To maintain a year-end debt to total capital ratio of approximately 25 percent with the goal of achieving a long-term debt rating of single-A.
To invest about $180 million to $200 million in capital expenditures annually to maintain and grow the business.
Given this framework and the company's long-range outlook, Mattel may generate more than $1.5 billion of excess free cash flow over the next three years. The company's current plans call for it to utilize free cash flow opportunistically, as follows:
To make strategic acquisitions within the company's vision of providing "the world's premier toy brands for today and tomorrow."
To return funds to shareholders through cash dividends and share repurchases.
The company plans to continue utilizing a disciplined decision-making process, which is based on a discounted cash flow evaluation of investment alternatives and requires a yield in excess of cost of capital.
Live Webcast
Mattel will webcast its 2002 fourth quarter and full year earnings conference call at 5:30 a.m. Pacific time (8:30 a.m. Eastern time) today. The conference call will be simulcast on the "Investors & Media" section of www.mattel.com. To listen to the call, log on to the Web site at least 15 minutes early to register, download and install any necessary audio software. An archive of the call may be accessed beginning three hours after the completion of the live call. To listen to a replay of the call via telephone, domestic and international callers should dial +(719) 457-0820. The passcode is 433974. The telephonic playback will be available for 48 hours beginning two hours after the completion of the live call.
About Mattel
Mattel, Inc. is the world's largest toy company and the leader in the design, manufacture and marketing of toys. The company's best-selling brands include Barbie®, Hot Wheels®, Fisher-Price® and American Girl®. With headquarters in El Segundo, California, Mattel has offices and facilities in 36 countries and sells its products in more than 150 nations throughout the world. The company's corporate Web site can be found at www.mattel.com.
Note: Forward-looking statements with respect to the financial condition, results of operations and business of the company, which may include, but are not limited to sales levels, restructuring, special charges, other non- recurring charges, cost savings, operating efficiencies, cash flow, investments, capital expenditures, strategic acquisitions, plans to employ capital and make investments and profitability are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These include without limitation: the company's dependence on the timely development, manufacture, introduction and customer acceptance of new products; the seasonality of the toy business; customer concentration; significant changes in buying and payment patterns of major customers, including as a result of bankruptcy; adverse changes in general economic conditions in the U.S. and internationally, including adverse changes in the retail environment; the impact of competition on revenues and margins; the effect of currency fluctuations on reportable income; risks associated with acquisitions and mergers including the possibility that attractive opportunities will not be identified or consummated and that such transactions may not result in the intended objective; risks associated with foreign operations; negative results of litigation, governmental proceedings or environmental matters; possible work stoppages, slowdowns or strikes; and other risks and uncertainties as may be detailed from time to time in the company's public announcements and SEC filings. This release includes forward-looking statements about anticipated revenue and earnings per share growth, cost savings under the company's financial realignment plan, sales strategy, cost cutting initiatives, and Mattel's plans to deploy capital and make investments (including statements regarding expected cash flow, internal funding of seasonal working capital, debt-to-equity ratios, long-term debt ratings, capital expenditures, acquisitions, cash dividends, share repurchases and the decision-making process) and may include other forward-looking statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.
MATTEL, INC. AND SUBSIDIARIES EXHIBIT I
FINANCIAL HIGHLIGHTS
PRO FORMA BEFORE CHARGES AND GOODWILL AMORTIZATION
DECEMBER 31, 2002
(In millions, except
per share amounts)
Three Months Ended or At Year Ended
12/31/2002 12/31/2001 % 12/31/2002 12/31/2001 %
Change Change
Key P&L Data:
Net Sales $1,669.5 $1,561.2 7% $4,885.3 $4,687.9 4%
Gross Margin $836.0 $747.4 12% $2,371.4 $2,177.1 9%
% of Net Sales 50.1% 47.9% 48.5% 46.4%
Advertising $199.9 $204.0 -2% $552.5 $543.2 2%
% of Net Sales 12.0% 13.1% 11.3% 11.6%
SG&A $315.6 $284.8 11% $1,018.1 $934.6 9%
% of Net Sales 18.9% 18.2% 20.8% 19.9%
Operating Income $291.1 $254.3 14% $783.7 $686.9 14%
% of Net Sales 17.4% 16.3% 16.0% 14.6%
Income Before
Charges & Goodwill $190.3 $154.9 $486.9 $386.3
% of Net Sales 11.4% 10.0% 10.0% 8.2%
EPS Before Charges
- Diluted $0.43 $0.35 $1.10 $0.89
Average Number of
Common Shares
- Diluted 442.2 437.5 441.3 436.2
Key Balance Sheet
Data:
Accounts Receivable,
Net $490.8 $665.8
Days of Sales
Outstanding (DSO) 26 38
Inventories $338.6 $487.5
Days of Supply
(DOS) 74 107
Total Debt
Outstanding $847.6 $1,269.1
Total Debt-to-Total
Capitalization 30.0% 42.2%
Worldwide Gross Sales:
Girls $838.4 $765.3 $2,314.7 $2,193.2
% As Reported 10% 1% 6% 3%
% Local Currency 8% 1% 5% 4%
Boys/Entertainment $418.1 $430.6 $1,299.6 $1,269.1
% As Reported -3% 5% 2% 6%
% Local Currency -3% 5% 2% 7%
Infant & Preschool $548.7 $482.6 $1,701.2 $1,621.3
% As Reported 14% -8% 5% -1%
% Local Currency 13% -9% 4% -1%
Total Company $1,821.4 $1,690.8 $5,342.5 $5,104.1
% As Reported 8% 0% 5% 2%
% Local Currency 7% 0% 4% 3%
Note - Certain financial information for prior years has been
reclassified to conform to the current year's presentation.
MATTEL, INC. AND SUBSIDIARIES EXHIBIT II
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except
per share amounts)
Three Months Ended Dec. 31, 2002 Year Ended Dec. 31, 2002
As Impact of As Impact of
Reported Charges Pro Forma Reported Charges Pro Forma
(a) (a)
Net Sales $1,669.5 $0.0 $1,669.5 $4,885.3 $0.0 $4,885.3
Cost of sales 835.2 1.7 833.5 2,524.3 10.4 2,513.9
Gross Profit 834.3 (1.7) 836.0 2,361.0 (10.4) 2,371.4
Advertising and
promotion
expenses 199.9 0.0 199.9 552.5 0.0 552.5
Other selling and
administrative
expenses 318.4 2.8 315.6 1,026.2 8.1 1,018.1
Restructuring and
other charges 2.9 2.9 0.0 24.6 24.6 0.0
Other expense,
net 29.2 (0.2) 29.4 22.3 5.2 17.1
Operating Income 283.9 (7.2) 291.1 735.4 (48.3) 783.7
Interest expense 28.6 0.0 28.6 113.9 0.0 113.9
Income From
Continuing
Operations Before
Income Taxes 255.3 (7.2) 262.5 621.5 (48.3) 669.8
Provision for
income taxes 69.2 (3.0) 72.2 166.5 (16.4) 182.9
Income From
Continuing
Operations 186.1 (4.2) 190.3 455.0 (31.9) 486.9
Gain from
discontinued
operations, net
of tax 0.0 0.0 0.0 27.3 27.3 0.0
Income Before
Cumulative Effect
of Change in
Accounting
Principles 186.1 (4.2) 190.3 482.3 (4.6) 486.9
Cumulative effect
of change in
accounting
principles, net
of tax 0.0 0.0 0.0 (252.2) (252.2) 0.0
Net Income $186.1 $(4.2) $190.3 $230.1 $(256.8) $486.9
Income Per Share
- Basic
Income from
continuing
operations $0.43 $(0.01) $0.44 $1.04 $(0.08) $1.12
Gain from
discontinued
operations 0.00 0.00 0.00 0.06 0.06 0.00
Cumulative effect
of change in
accounting
principles 0.00 0.00 0.00 (0.58) (0.58) 0.00
$0.43 $(0.01) $0.44 $0.52 $(0.60) $1.12
Average Number of
Common Shares
Outstanding
- Basic 437.4 437.4 437.4 435.8 435.8 435.8
Income Per Share
- Diluted
Income from
continuing
operations $0.42 $(0.01) $0.43 $1.03 $(0.07) $1.10
Gain from
discontinued
operations 0.00 0.00 0.00 0.06 0.06 0.00
Cumulative effect
of change in
accounting
principles 0.00 0.00 0.00 (0.57) (0.57) 0.00
$0.42 $(0.01) $0.43 $0.52 $(0.58) $1.10
Average Number of
Common and Common
Equivalent Shares
Outstanding
- Diluted 442.2 442.2 442.2 441.3 441.3 441.3
Three Months Ended Dec. 31, 2001 Year Ended Dec. 31, 2001
As Impact of As Impact of
Reported Charges Pro Forma Reported Charges Pro Forma
(a) & Goodwill (a) & Goodwill
Net Sales $1,561.2 $0.0 $1,561.2 $4,687.9 $0.0 $4,687.9
Cost of sales 818.0 4.2 813.8 2,539.0 28.2 2,510.8
Gross Profit 743.2 (4.2) 747.4 2,148.9 (28.2) 2,177.1
Advertising and
promotion
expenses 204.0 0.0 204.0 543.5 0.3 543.2
Other selling and
administrative
expenses 286.2 1.4 284.8 936.1 1.5 934.6
Restructuring and
other charges 2.7 2.7 0.0 15.7 15.7 0.0
Other expense, net 7.2 2.9 4.3 22.4 10.0 12.4
Operating Income
Before Amortization
of Goodwill 243.1 (11.2) 254.3 631.2 (55.7) 686.9
Amortization of
goodwill 11.6 11.6 0.0 46.1 46.1 0.0
Operating Income 231.5 (22.8) 254.3 585.1 (101.8) 686.9
Interest expense 41.1 0.0 41.1 155.1 0.0 155.1
Income Before
Income Taxes 190.4 (22.8) 213.2 430.0 (101.8) 531.8
Provision for
income taxes 52.4 (5.9) 58.3 119.1 (26.4) 145.5
Income Before
Cumulative Effect
of Change in
Accounting
Principles 138.0 (16.9) 154.9 310.9 (75.4) 386.3
Cumulative effect
of change in
accounting
principles, net
of tax 0.0 0.0 0.0 (12.0) (12.0) 0.0
Net Income $138.0 $(16.9) $154.9 $298.9 $(87.4) $386.3
Income Per Share
- Basic
Income before
cumulative effect
of change in
accounting
principles $0.32 $(0.04) $0.36 $0.72 $(0.18) $0.90
Cumulative effect
of change in
accounting
principles 0.00 0.00 0.00 (0.03) (0.03) 0.00
$0.32 $(0.04) $0.36 $0.69 $(0.21) $0.90
Average Number of
Common Shares
Outstanding
- Basic 431.8 431.8 431.8 431.0 431.0 431.0
Income Per Share
- Diluted
Income before
cumulative effect
of change in
accounting
principles $0.31 $(0.04) $0.35 $0.71 $(0.18) $0.89
Cumulative effect
of change in
accounting
principles 0.00 0.00 0.00 (0.03) (0.03) 0.00
$0.31 $(0.04) $0.35 $0.68 $(0.21) $0.89
Average Number of
Common and Common
Equivalent Shares
Outstanding
- Diluted 437.5 437.5 437.5 436.2 436.2 436.2
(a) Reported in accordance with generally accepted accounting principles.
Note - Certain financial information for prior years has been
reclassified to conform to the current year's presentation.
MATTEL, INC. AND SUBSIDIARIES EXHIBIT III
CONSOLIDATED STATEMENTS OF OPERATIONS
BEFORE CHARGES AND GOODWILL AMORTIZATION
(In millions, except For The Three Months Ended Dec. 31,
per share amounts) 2002 2001
$ Amt % Net Sales $ Amt % Net Sales % Change
Net Sales $1,669.5 $1,561.2 6.9%
Cost of sales 833.5 49.9% 813.8 52.1% 2.4%
Gross Profit 836.0 50.1% 747.4 47.9% 11.8%
Advertising and
promotion
expenses 199.9 12.0% 204.0 13.1% -2.0%
Other selling and
administrative
expenses 315.6 18.9% 284.8 18.2% 10.8%
Other expense,
net 29.4 1.8% 4.3 0.3%
Operating Income 291.1 17.4% 254.3 16.3% 14.4%
Interest expense 28.6 1.7% 41.1 2.6% -30.3%
Income Before
Income Taxes 262.5 15.7% 213.2 13.7% 23.0%
Provision for
income taxes 72.2 4.3% 58.3 3.7% 23.4%
Income Before
Charges &
Goodwill $190.3 11.4% $154.9 10.0% 22.8%
Effective Tax
Rate 27.5% 27.4%
EPS Before
Charges
- Basic $0.44 $0.36
Average Number
of Common Shares
- Basic 437.4 431.8
EPS Before Charges
- Diluted $0.43 $0.35
Average Number of
Common Shares
- Diluted 442.2 437.5
(In millions, except For The Year Ended Dec. 31,
per share amounts) 2002 2001
$ Amt % Net Sales $ Amt % Net Sales % Change
Net Sales $4,885.3 $4,687.9 4.2%
Cost of sales 2,513.9 51.5% 2,510.8 53.6% 0.1%
Gross Profit 2,371.4 48.5% 2,177.1 46.4% 8.9%
Advertising and
promotion
expenses 552.5 11.3% 543.2 11.6% 1.7%
Other selling and
administrative
expenses 1,018.1 20.8% 934.6 19.9% 8.9%
Other expense,
net 17.1 0.4% 12.4 0.3%
Operating Income 783.7 16.0% 686.9 14.6% 14.1%
Interest expense 113.9 2.3% 155.1 3.3% -26.6%
Income Before
Income Taxes 669.8 13.7% 531.8 11.3% 25.9%
Provision for
income taxes 182.9 3.7% 145.5 3.1% 25.7%
Income Before
Charges &
Goodwill $486.9 10.0% $386.3 8.2% 26.0%
Effective Tax
Rate 27.3% 27.4%
EPS Before Charges
- Basic $1.12 $0.90
Average Number of
Common Shares
- Basic 435.8 431.0
EPS Before Charges
- Diluted $1.10 $0.89
Average Number of
Common Shares
- Diluted 441.3 436.2
CONDENSED CONSOLIDATED BALANCE SHEETS
At Dec. 31,
(In millions) 2002 2001
Assets
Cash and short-term investments $1,267.0 $616.6
Accounts receivable, net 490.8 665.8
Inventories 338.6 487.5
Prepaid expenses and other
current assets 292.6 291.9
Total current assets 2,389.0 2,061.8
Property, plant and equipment, net 599.6 626.7
Other assets 1,471.1 1,821.3
Total Assets $4,459.7 $4,509.8
Liabilities and Stockholders' Equity
Short-term borrowings $25.2 $38.1
Current portion of long-term
liabilities 182.3 210.1
Accounts payable and accrued
liabilities 1,238.3 1,078.2
Income taxes payable 203.0 239.8
Total current liabilities 1,648.8 1,566.2
Long-term debt 640.1 1,020.9
Other long-term liabilities 192.1 184.2
Stockholders' equity 1,978.7 1,738.5
Total Liabilities and
Stockholders' Equity $4,459.7 $4,509.8
Note - Certain financial information for prior years has been reclassified to conform to the current year's presentation.
