Mattel Inc.: A Financial Journal

A Financial Journal

Mattel, Inc.

Mattel, Inc. (Mattel) is the worldwide leader in the design, manufacture and marketing of toys and family products worldwide, including Barbie®, the most popular doll ever created. Mattel's portfolio of brands is comprised of best-selling brands such as Hot Wheels®, Matchbox®, American Girl® and Tyco® R/C, as well as Fisher-Price brands which include Little People®, Rescue Heroes®, Power Wheels® and a wide array of entertainment-inspired toy lines. Their other brands include American Girl®, Poly Pocket! ®, and Scrabble®, to name a few . Mattel's reportable segments are separately managed business units and are divided on a geographic basis between domestic and international. The Domestic segment is further divided into Mattel Brands US, Fisher-Price® Brands US and American Girl® Brands. Mattel also produces licensed toys for Sesame Street, Barney, and Nickelodeon. In additional, they also manufacture toys that are based on Walt Disney movies and Harry Potter books .

With worldwide headquarters in El Segundo, California, Mattel employs more than 25,000 people in 42 countries and sells products in more than 150 nations throughout the world. The Mattel vision is to be the world's premier toy brands--today and tomorrow.

The Toy Industry

The toy industry is big business, a $60B business to be exact. This excludes video games, which are in a different sector. The leading players are two big US toymakers: Mattel (Barbie®, Hot Wheels®, Fisher-Price®) and Hasbro (G.I. Joe®, Tonka®, Playskool®). Other big global players include Japan's Ban Dai Co. and Sanrio, as well as Denmark's Lego, whose annual sales are at around $1B.

Key to their sales is their retail network, and the biggest distributors in the US are large discount stores such as Wal-Mart (the biggest, with 20% of the US market), Kmart, and Target. Other distribution channels include specialty stores, but they have been pushed out by these big discount chains. Most toy retailers have online presence, but were eventually wiped out by the dot-com crash. Amazon.com is the leading online toy vendor to date.

Aside from ensuring their sales, toy companies must also be on the lookout on the next big hits in toys. Interactive, techie toys are more popular nowadays; companies now churn out more chip-driven toys.

Children grow up faster these days. The emergence of the "tween" market (ages 7-14) led to shorter lifespan for some toys like Barbie®, young girls look for self-defining items like jewelry, personalized items, etc.

Retro toys are making a comeback, 80's icons like the Care Bears, Strawberry Shortcake, and My Little Pony have a new-found demand.

The internet has also provided children to be more "involved" with their toys, most toys have their own websites (like http://www.barbie.com) complete with story lines, bios, screensavers, message boards, and games.

Some toymakers scored hits from licensing deals with movies, such as Star Wars, Harry Potter, Toy Story, etc. However, licensing has become an option to approach with caution, since some companies get stuck with unsold inventory after the movie's hype dies out.

There are still globally untapped markets that toy companies can look at; a large opportunity exists in a considerable number of children who haven't yet heard of the toys made by Mattel or Hasbro. Historically, toy makers have targeted American children, who acquire an average of $400 worth of toys in a year. However, there are only about 60 million American children, and as the baby boom generation stops having children, the number of toy-buying households in the US will shrink. Asian markets like in India, for example, have 400 million potential toy consumers, and China, 300 million . Players in the toy industry will have to attract the attention of children around the world if they hope to sustain growth.

Mattel's Financials

Is getting old?

Sales figures for Mattel has been increasing steadily and at a minimal rate: growth in 2004 has only been at 2.9%, way below the industry average of 11.9%. While it does well against its closest competitor, Hasbro (who experienced a dip in sales), it is outpaced by a smaller company, JAKKS Pacific, in terms of sales growth. This may perhaps be explained by the fact that aside for manufacturing toys, JAKKS Pacific is also engaged in the creation of video games for consoles like Playstation, Xbox, and the like, which have become more popular choices over traditional toys. Barbie® is perhaps getting old, sales of Barbie® dolls were down 6%, and were only offset by the sales of Fisher-Price products.

Mattel barely has loans; and it seems that it is not planning to take on any major project or acquisition to beef up its status. Also, Mattel isn't at all worried because its current assets are more than enough to fund their current liabilities. Perhaps it is fair to say that Mattel is adopting a more aggressive financing strategy to fund for its working capital requirements. With billions of dollars in sales, who needs a loan? Overall, Mattel's financials exhibit that of a mature company--sales are growing at a minimal rate, and there are no evident capital expenditures needed.

Working Capital Management

Mattel works on a negative working capital policy, which has decreased their reliance on loans as depicted by the decrease in long-term debt and interest expenses over the years in Mattel's financial statements. Mattel obviously follows a more aggressive policy in financing its working capital requirements. This is not unusual for big companies and at the same time have stable and fast demand for its products. Mattel has also managed to bring both its receivables and inventory down, although not quite significantly.

Year Receivables Turnover Inventory Turnover Payables Turnover CCC

2004 54.29 29.94 93.26 -9.02

2003 40.02 28.60 102.72 -34.10