2002 Annual Report Innovation Is the Product of Knowledge Turned Into Action
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2002 Annual Report Innovation is the product of knowledge turned into action. To our shareholders: Looking back, 2002 was a very good Cash flow from The challenging retail environment took year. Although we faced many challenges, operations soared its toll on our customers in 2002. Most Mattel remained true to the vision, to almost $1.2 billion, retailers reported sales below expecta- strategies and values laid out during my an all-time record tions, and certain retailers announced first 100 days with the company – to be at Mattel. store closures and reorganization plans. “The World’s Premier Toy Brands – The resulting reorganization and Today and Tomorrow.” But as the year progressed, U.S. consolidation activity put pressure on consumers stopped propping up the Mattel’s sales in 2002. This pressure is Mattel performed well across all financial economy. By the fourth quarter, which expected to persist as the reorganization measures during 2002. Looking to the contributes about 55 percent of the activities continue in 2003. income statement, sales increased while toy industry’s annual retail sales, we costs declined and expenses were Additionally, the competitive environment witnessed the worst overall retail controlled. As a result, operating income was intense. Once again, our Girls division environment in many years. Most faced new entrants in the dolls segment; was up 14 percent, excluding non-recurring encouragingly, however, the historical Infant/Preschool continued to see the charges and goodwill amortization. On the pattern of toy sales doing relatively incursion of new educational toys; and balance sheet, accounts receivable and well during tough times held up yet Boys/Entertainment had stiff competition inventory were down, cash was up, debt again in 2002. That, combined with from entertainment properties, with the was reduced and stockholder equity our initiatives to optimize our business, release of toys supporting the Spider-Man™ increased. Most importantly, cash flow drove our success. and Star Wars™ movies. from operations soared to almost $1.2 billion, an all-time record at Mattel. With that said, there were challenges in Despite these challenges, we kept our 2002, including the uncertain retail environ- focus and optimized results through The first quarter of 2002 saw toy industry ment, weakening consumer confidence, sound execution of the four strategic sales start out strong, driven by clean disconcerting unemployment figures and priorities I outlined for you in last year’s retail inventory levels and an early Easter. unrest at the West Coast ports. letter to shareholders. 1 innovative people and processes Strengthened core brand momentum We also continued our strategic partner- Improved supply chain performance in the U.S. and abroad: ship with Bandai, Japan’s leading toy and customer service levels: Each business unit contributed to our marketer, and launched our product lines We also made progress in 2002 through success in 2002, with the Girls, in South Korea. Finally, our Canadian our supply chain initiatives. By better Infant/Preschool and Boys/Entertainment team delivered another solid year. aligning our shipments to retailers with divisions well-represented among the consumer demand, we have been able In 2003, to accelerate our global brand hottest “must-have” toys of the year. to strengthen our partnerships with expansion and provide more focus on retailers and lower costs. Additionally, Our brands continued to perform well in in-market execution, we have named a new our multi-language packaging strategy international markets during 2002, with executive vice president of International. not only reduced item count, but also double-digit growth on top of the prior Executed the financial realignment allowed for much more agility during the year’s equally strong gains. Our European plan and delivered cost savings: West Coast port dispute by providing business led the way with robust perfor- As part of the financial realignment plan the flexibility to redirect product in high mance in all markets and across all to deliver cost savings, we completed demand to the appropriate market. business segments. Our Latin American the closure of the Murray, Kentucky region clearly benefited from the manage- Developed our people, as manufacturing and distribution facility. ment changes and business system well as improved employee We streamlined the workforce in our upgrades mentioned in last year’s letter. development processes: corporate locations worldwide and Despite the difficult economic and political We also promised to develop our people. we began investing in our long-term climate in several countries, the region The Mattel Leadership Development information technology strategy. For recorded substantial profit increases and Center has enjoyed much success with the year, the $87 million of cost savings exceptional improvement in cash flow. In employees worldwide, from the Global contributed by the plan exceeded our the Asian Pacific region, sales and profits Leadership Program and e-learning to $65 million target. grew strongly in the developed markets seminars for our most senior executives. of Australia and New Zealand. 2 We also launched Our people development programs Moving forward, when I think about our provide a solid foundation for professional strategic focus for 2003, my thoughts “MATPICS” employee development across the organization and revolve around a fresh set of key priorities, competencies in 2002– at every level. which I call the “4 Cs.” They are core brands, channels, costs and cash. the standards of how We also launched our "MATPICS" we achieve results. employee competencies in 2002 – the Let's start with core brands. In 2003, we standards of how we achieve results, will continue to focus on our core brands Mattel & Business Expertise which, like our corporate values, are just through the key strategies of extension, A ction Leader as important as what we achieve. The expansion, globalization and promotion T eam Builder skills we are building through training of operational excellence via best-practice and processes like MATPICS, Quality of sharing. As we announced earlier this P assion Organization Review succession manage- year, the Girls and Boys/Entertainment I ntegrity ment and Career Action Planning are divisions have consolidated to form a new C ourage enabling us to be more effective in business unit, Mattel Brands. This new ® S marts meeting our business goals and filling global division includes the Barbie and a much higher percentage of positions Hot Wheels® mega brands, as well as with internal candidates. brands based on licensed entertainment properties. The creation of the Mattel We’ve made good progress around the Brands business unit is a continuation world with these strategic priorities, and of our "One Mattel" approach to doing I am proud of the way Mattel’s employees business, eliminating redundancies navigated through the many obstacles to within the organization and, most deliver a successful year. importantly, fostering an environment of best-practice sharing. 3 innovative ideas As part of this transition, Pleasant The new ello™ brand, a creativity closures and just-in-time inventory Company was separated from the Mattel system for girls, launches worldwide management, which results in a challenging Brands business unit. The Infant/Preschool this year. retail environment. As part of managing division remains unchanged. The Hot Wheels Highway 35™ integrated our supply chain and inventory levels, marketing program celebrates the our overarching objective is to continue While we have a cache of exciting brand’s 35th anniversary. better matching our shipping with product lines, the foundation of Mattel's Learning initiatives at Fisher-Price consumer demand. We also will continue success rests in our portfolio of power continue with a new line-up of Kasey to expand our Customer Business Team brands. Further, as 2003 will be an the Kinderbot™ software accessories concept, which was implemented in "entertainment-lite" year with no block- and the launch of the new PowerTouch™ 2002, to offer retailers focused support buster movies, such as Harry Potter™, brand, an early-learning system that from key areas of Mattel, including supporting our toy lines, the spotlight has scored high marks in tests with forecasting, space management, logistics, will shine on our core evergreen brands. kids, their parents and teachers. retail services and more. We will increase For example: Following the success of the American our use of sophisticated category My Scene™, the exciting new Barbie® Girl Place® flagship store on Chicago’s management tools, which demonstrates segment targeted to the “tween” market, famed Michigan Avenue, a second to retailers the economic benefits of which launched on a limited basis in store is slated to open on New York’s supporting our brands. 2002, will feature an expanded line 5th Avenue this fall. The third “C” is costs. While the rolling out this year. The next “C” is channels, as in retail execution of our financial realignment Barbie™ of Swan Lake debuts this fall channels – our customers. Our retail plan is continuing into its final year, on DVD/home video with an expanded customers continue to streamline their including the consolidation of two toy line following a solid performance businesses to address the difficult manufacturing facilities in Mexico by the in 2002 by Barbie™ as Rapunzel. economic environment through store end of 2003, we clearly