The name of the company our group is going to analyze is Mattel, Inc. which is the global leader in the design, manufacture and marketing of toys and family goods. The Mattel includes such brands as Barbie®, the most famous fashion doll ever presented in the world, Hot Wheels®, Matchbox®, American Girl®, Radica® and Tyco R/C®, Fisher-Price® brands, which consist of Little People®, Power Wheels® and a wide range of entertainment-inspired toy lines. Company's products consist of fashion dolls and accessories, vehicles and playsets, games and puzzles. Mattel, Inc. serves as a publisher of advice and activity books, as well as magazines, such as the American Girl. Company sells its goods to retailers, as well as discount and free-standing toy stores, chain stores, department stores, and other retail outlets; wholesalers; and distribution centers. Mattel markets its products both directly and through its official Web site, and agents and distributors. Mattel sells its productions throughout the world, with approximately half of its sales coming from outside the United States. Mattel's primeval target market is of course children. On the other hand, some of Mattel's electronic and board games have been designed for older customers' range, from teenagers to adults.
In 2010 FORTUNE Magazine officially included Mattel in the list of "100 Best Companies to Work For" for the third consecutive year. Mattel was also ranked among Corporate Responsibility Magazine's "100 Best Corporate Citizens" and "World's Most Ethical Companies." Mattel provides jobs to just about 27,000 people in 43 countries and sells its products in more than 150 countries. Mattel's vision is to be the world's premier toy brands-today and tomorrow.
One of the major problems Mattel is currently facing is decreasing interest in company's products due to the fast-growing popularity of video games. The toy industry in which the company operates is considered to be slow-growing now, as children chose digital entertainments over real toys. Furthermore, profit margins at Mattel being compressed by macro-economic factors such as pressure from retailers and increasing input and distribution costs. Fluctuations in prices for oil affected input costs for making plastic-based toys and had its affect on distribution costs for delivering products from factories located in Asia to other world territories.
However, Mattel has made a first step to entrance of the world of the electronic game industry when it acquired Radica Games in October 2006. Mattel has also broadened its assortment of traditional toys, by adding licensing contracts with WWE Wrestling and HIT Entertainment.
Mattel, Inc. operates in highly-competitive environment, as US toy manufacturing industry includes about 900 companies with combined annual revenue of $5 billion. Mattel is one of the major companies in toy industry as well as its main competitors Hasbro, and JAKKS Pacific. Among secondary competitors of Mattel are LEGO, Bandai and video game manufacturers such as Electronic Arts (ERTS), Microsoft (MSFT), Sony (SNE), and Atari (ATAR).
According to geographical sales Mattel groups its business into two divisions: Domestic (North America) and International. Mattel delivers the same range of products both domestically and abroad. Mattel's international sales presented 49% of its gross sales in 2008. Europe is Mattel's primeval market after domestic in North America. In addition, in 2008, domestic sales decreased by 2% while international sales declined only by 1%.
Mattel spreads out its products into three major segments:
1. Mattel Boys & Girls Brands (56% of sales)
This brand group is the major one, as it includes mainly all Mattel's traditional products and licensing contracts with Disney (DIS), Time Warner (TWX), and DC Comics. The Girls brands are Barbie, Polly Pocket!, and Disney Classics; the Boys brands are Hot Wheels, Matchbox, Tyco R/C brands, and licensed DC Comics products. Radica Games which was acquired by Mattel in 2006 is also included in this segment. During 2008 gross sales of this brand group declined by 2% and in 2009 gross sales decreased further by 10% and resulted in $3.29 billion.
2. Fisher-Price Brands (37% of sales)
This brand group consists of products designed for younger children. The major brands in this segment are Fiscer-Price, Little People, BabyGear, View-Master, and licensed products from Nickelodeon (Dora the Explorer and Go-Diego-Go), Sesame Street, and Disney (Winnie the Pooh). In 2008 gross sales for the Fisher-Price group raised by 1% worldwide, in 2009, they gross sales were $2.17 billion as they reduced by 8%.
3. American Girl Brands (7% of sales)
American Girl is a subsidiary of Mattel. It delivers majority of its products directly to purchasers in the U.S. Furthermore, a range of American Girl doll retail stores are operated throughout the country. American Girl brand specializes on production of dolls, books, clothes, toys, and accessories for girls of the age 3 and up. In 2008 American Girl sales increased by 7% mostly due to release of the movie Kit Kittredge: An American Girl. This film led to bigger sales of dolls and products related to it. In 2009, American Girl Brands had gross sales of $462.9 million.
During 2009, Mattel strengthened control over its supply chain and the company itself by making some changes in infrastructure, reducing its capital spending by doing only business-critical projects.controlling costs and decreasing expenses and managing its workers. The results of the hard work of the companies were: improved profitability, a stronger balance sheet, and improved cash flow, which Mattel used to lower debt, increase cash balances.
• Because of the increase in price and in net cost savings related to Mattel's Global Cost Leadership program, gross profit as a percentage of net sales increased from 45.4% in 2008 to 50.0% in 2009.
• Because of the higher gross profit, lower promotion and other administrative expenses operating income increased from $541.8 million in 2008 to $731.2 million in 2009.
• The Global Cost Leadership program's gross costs savings of approximately $164 million during 2009
• The increase of cash flows from operations was from $436.3 million in 2008 to $945.0 million in 2009.
• The decrease of capital expenditures was from $198.8 million in 2008 to $120.5 million in 2009.
Mattel also designed its Global Cost Leadership Program to improve operating efficiencies, profitability and operating cash flows. The major points within this program are:
• A global reduction in Mattel's professional workforce of approximately 1,000 employees
• Coordination of a strategic plan how to lower costs and improve efficiencies
• Designing additional initiatives designed to improve such areas as creative agency partnerships, legal services, and distribution.
By the end of 2010 Mattel's Global Cost Leadership program is intended to generate approximately $180 million to $200 million of cumulative net cost savings.
Results of Operations 2009 Compared to 2008
Net income for 2009 was $528.7 million,or $1.45 per diluted share as compared to net income of $379.6 million, or $1.04 per diluted share, for 2008. Net income for 2009 was influenced by net tax benefits of $28.8 million.
Gross profit as a percentage of net sales changed from 45.4% in 2008 to 50.0% in 2009. The increase was because the prices increased. Income before income taxes as a percentage of net sales increased to 12.2% in 2009 from 8.2% in 2008. This happened because of higher gross profit and lower advertising, promotion and administrative expenses. Net sales for 2009 were $5.43 billion, an 8% decrease as compared to $5.92 billion in 2008. Gross sales within the US decreased 4% from 2008. Gross sales in international markets decreased 13% as compared to 2008. Cost of sales decreased by $517.4 million, or 16%, from $3.23 billion in 2008 to $2.72 billion in 2009 as compared to an 8% decrease in net sales. The decrease from 2008 was because lower sales volume, cost savings from Mattel's Global Cost Leadership program, and lower input costs. Gross profit as a percentage of net sales increased from 45.4% in 2008 to 50.0% in 2009. This increase happened because of the increase in prices and net cost savings related to the Global Cost Leadership program. Advertising and promotion expenses decreased to 11.2% of net sales in 2009, from 12.2% of net sales in 2008, due primarily to lower sales volume in 2008 and savings of approximately $14 million related to Mattel's Global Cost Leadership program. Other selling and administrative expenses were $1.37 billion in 2009, or 25.3% of net sales in 2009 as compared to $1.42 billion in 2008, or 24.1% of net sales. Interest expense was $71.8 million in 2009 as compared to $81.9 million in 2008, because of lower average borrowings and lower average interest rates. Interest income decreased from $25.0 million in 2008 to $8.1 million in 2009 due to lower average interest rates on lower average cash balances. Other non-operating expense was $7.4 million in 2009 as compared to other non-operating income of $3.1 million in 2008. The change in other non-operating income/expense first of all was because of foreign currency exchange gains and losses.
Mattel's tax rate on income before income taxes decreased-it was 22.2% in 2008 and 19.9% in 2009. Mattel is planning to use its free cash flows to invest in strategic acquisitions and to return funds to stockholders through cash dividend. Anyways there is no assurance that Mattel will have strong cash flows from operating activities or achieve its targeted goals for investing activities even though the ability to successfully implement its plan is directly dependent on Mattel's ability to generate strong cash flows from operating activities.
Cash flows generated from operating activities were $436.3 million in 2008 and increase to $945.0 million in 2009. This increase was because of higher profitability and lower working capital requirements.
Cash flows used for investing activities were higher in 2008 than in 2009 because of the lower purchases of property, plant, and equipment, an increase in other investments in 2008 and lower payments for businesses. Because of the higher purchase of tools, property, plant, and equipment cash flows used for investing activities decreased to $33.5 million during 2009.
Because of lower share repurchases, tax benefits, and higher proceeds from the exercise of stock options cash flows used for financing activities decreased to $376.1 million in 2009 from $395.7 million in 2008. During 2008, Mattel repurchased 4.9 million shares at a cost of $90.6 million and during 2009, Mattel did not repurchase any shares of its common stock. In 2009, 2008, and 2007, Mattel paid a dividend per share of $0.75 to holders of its common stock.
The increase in Mattel's cash and equivalents of $499.3 million from 2008 was by cash flows generated from operating activities of $945.0 million, due to higher profitability and lower working capital requirements. Accounts receivable decreased $124.2 million 2008 to $749.3 million in 2009 improving days of sales outstanding. Inventories decreased from $130.3 million in2008 to $355.7 million in 2009, first of all because the lower costs of producing inventory in 2009. There was a decrease in accounts payable and accrued liabilities from $102.6 million in 2008 to $968.6 million in 2009, first of all because of the amount of payments of accounts payable and various accrued liability balances. The current portion of long-term debt decreased $100.0 million to $50.0 million in 2009 as compared to 2008 due to the repayments of $100.0 million of the 2006 Senior Notes and $50.0 million of Medium-term notes.
Mattel's focus for 2010 is to strengthen its work on long-term profitability goals such as: to achieve gross margin of approximately 50%, advertising expense of approximately 11% to 13%, and other selling and administrative expenses of approximately 20%, which should result in operating margins of approximately 15% to 20%. Mattel will continue to manage its business based on realistic revenue assumptions, but is more optimistic about its revenue in 2010 based on the momentum of its core brands from 2009, strong partnerships for licensed brands in 2010, including WWE® Wrestling, Disney/ Pixar's Toy Story®, and HIT Entertainmentâ„¢'s Thomas and Friends®, and its evergreen licensed properties. (Mattel Annual Report, 2009)
Common ratios
Liquidity ratios are used for evaluation of the company's ability to pay off its short-terms debts obligations. So, higher ratios indicate company's better capacity for covering short-term debts.
2007
2008
2009
Current ratio
1,65
1,89
2,41
Current ratio is above 1 which means that the company is able to pay off its obligations if they came due at some point, and that the company is efficient.
Quick ratio
1,19
1,30
1,87
The quick ratio estimates company's ability to meet its short-term obligations with its most liquid assets. In comparison to current ratio, quick ratio excludes assets that can be difficult to convert into cash quickly, f.i. inventories. In 2009 quick ratio increased significantly in comparison to the previous years due to increase in cash and decrease in current liabilities.
Receivable turnover
6,17
6,35
6,69
In 2009 Mattel was more effective in extending credit and collecting debts, furthermore, company was using its assets more efficiently.
Days' sales uncollected
59,15
57,66
54,54
Estimates average number of days that a company needs for collecting revenue after a sale has been made. Mattel sells its product to retailers on credit and it takes longer to collect money, than if the company was selling production for cash. In 2009 this ratio decreased, which means that the company started to collect revenues faster.
Inventory turnover
7,87
7,07
6,45
Shows how many times Mattel's inventory is sold and replaced over an accounting period. Inventory turnover decreased in 2009due to decrease in sales.
Days' inventory on hand
46,41
51,76
56,55
In 2009 inventory stayed on hand for more days than in 2008 due to decreasing demand for the company's product being sold.
Payables' turnover
12,33
13,93
Payables' turnover increased from 2008 to 2009, which means that the company is paying off its suppliers at a faster rate.
Days' payable
29,67
26,20
In 2009 it took fewer days for the company to pay its trade creditors, than in 2008.
Profitability Ratios are used to evaluate company's ability to generate earnings comparing to its expenses and costs incurred during an accounting period.
Profit Margin
0,10
0,06
0,10
In 2009 Mattel had $0,10 of net income for each dollar of sales, while in 2008 this amount was equal to $0,06, due to unfavorable economic conditions.
Asset turnover
1,22
1,25
1,14
In 2009 asset turnover decreased comparing to 2008; therefore, company was using its assets in generating sales (or net revenues) less efficiently.
Return on assets
0,12
0,08
0,11
Return on assets increased from 2008 to 2009, which means that the Mattel was more effective in generating its earnings. The primeval reason of this increase was raise in net income from 2008 to 2009. In addition, in 2008 company's net income was smaller due to financial crisis that hit the global toy industry. So, in 2009 return on assets almost came back to its value before the crisis.
Return on equity
0,26
0,17
0,23
Return on equity estimates company's profitability by indicating how much profit a company generates with the money invested by shareholders. Mattel's return on equity as well as return on assets increased from 2008 to 2009.
Long-Term Solvency Ratios measure company's ability to meet long-term obligations. These ratios provide estimation of company's ability to sustain meeting its debt obligations.
Debt to equity ratio
1,05
1,16
0,46
Debt to equity ratio shows what proportion of equity and debt is used to finance company's assets. In 2009 ratio was below 1 which means that equity provided majority of the financing used to finance assets, while in 2008 majority of the financing was provided by debt, so the ratio was greater than 1. Therefore, in 2009 Mattel was less exposed to interest rate increases and creditor nervousness
Interest coverage ratio
10,91
6,95
10,19
Interest coverage ratio is used to estimate how easily company can pay interest on outstanding debt. The higher the interest coverage ratio, the lower the company's debt burden and the possibility of bankruptcy or default is smaller. So, in 2009 Mattel was in better situation than in 2008 as the company's interest coverage ratio increased.
Cash Flow Adequacy Ratios is a measure of a company's ability to generate cash sufficient to pay company's debts, reinvest in its operations and make distributions (dividends) to owners.
Cash flow yield
0,93
1,15
1,79
Cash flow yield ratio is used to calculate company's ability to generate operating cash flows in relation to net income. In 2009 cash flow yield ratio increased in comparison to previous years, which means that Mattel was more efficient in 2009.
Cash flows to sales
9%
7%
17%
This ratio provides information about company's ability to turn sales into cash. In 2009 cash flows to sales ratio increased and was equal to approximately 17 cents of operating cash flow in every sales dollar, while in 2008 ratio was equal to 7 cents.
Cash flows to assets
0,12
0,09
0,20
Cash flows to assets ratio estimates the cash a company can generate in relation to its assets size. In 2009 ratio increased, therefore company has improved its ability to generate cash.
Free cash flow
Net cash Flows from Op. Act. - Dividends - Net Capital Expenditures
N/A
894799,00
1419216,00
Free cash flow indicates the cash that company can generate after laying out the money required to maintain or expand its asset base. In 2009 free cash flow increased comparing to 2008 due to increase in net cash flows from operating activities.
Market Strength Ratios provide information to the investors about the upward or downward trends of the market.
Price/Earnings (P/E) ratio
11,75
23,78
11,07
This ratio evaluates company's current share price compared to its per-share earnings. P/E ratio decreased from 2008 to 2009, due to decrease in market price per share. Lower P/E ratio indicates that investors are expecting lower earnings growth in the future in relation to companies with higher P/E.
Dividends yield
0,04
0,03
0,05
Dividends yield ratio estimates how much company pays out in dividends each year in relation to its share price. In 2009 dividends yield increased, so, Mattel's investors were earning greater return on their shares.
