Mattel, Inc. History

Address:

333 Continental Boulevard
El Segundo, California 90245-5012
U.S.A.

Telephone: (310) 252-2000
Fax: (310) 252-2180

Public Company
Incorporated: 1948
Employees: 25,000
Sales: $4.89 billion (2002)
Stock Exchanges: New York Pacific
Ticker Symbol: MAT
NAIC: 339931 Doll and Stuffed Toy Manufacturing; 339932 Game, Toy, and Children's Vehicle Manufacturing

Company Perspectives:

Mattel's management has articulated its overall company vision: The World's Premier Toy Brands--Today and Tomorrow. Management set five key company strategies: (i) improve execution of the existing toy business; (ii) globalize the brands; (iii) extend the brands; (iv) catch new trends; and (v) develop people.

Key Dates:

1945:: Ruth and Elliot Handler and Harold "Matt" Matson form a partnership called Mattel Creations, making and selling first picture frames and later dollhouse furniture; Matson is soon forced to sell out because of ill health.
1947:: The "Uke-A-Doodle" becomes the first of many hit Mattel toys.
1948:: The company is incorporated in California.
1955:: In a revolutionary move, Mattel becomes a year-round sponsor of the Walt Disney television program Mickey Mouse Club.
1959:: Mattel introduces the Barbie doll, which will eventually become the best-selling toy ever.
1960:: Mattel goes public.
1963:: The company gains a listing on the New York Stock Exchange.
1968:: Hot Wheels miniature model cars, another spectacular hit, are introduced.
1974:: The Handlers are ousted from the company after investigators find that the company issued false and misleading financial reports.
1983:: The company verges on bankruptcy with a $394 million loss after an ill-advised venture into video games.
1987:: John W. Amerman, who has been named chairman, revitalizes the company through an emphasis on core brands.
1988:: Mattel revives its collaboration with Disney.
1993:: Fisher-Price Inc., the world leader in infant and preschool toys, is acquired.
1997:: Mattel buys out Tyco Toys, Inc., the third largest U.S. toy maker.
1998:: Pleasant Company, maker of the American Girl brand, is acquired.
1999:: The Learning Co., a major player in computer games and educational software, is acquired for $3.5 billion.
2000:: Mattel sells off Learning Co. at a huge loss; the company reports a net loss for the year of $430.9 million.

Company History:

The world's largest toy company, Mattel, Inc. designs, manufactures, markets, and distributes a wide variety of toy products in 150 countries. The company's products include a number of core toy lines, including Barbie dolls, clothing, and accessories; Hot Wheels toy die-cast vehicles; Warner Bros. merchandise, including Harry Potter, Batman, Superman, and Looney Tunes products; the American Girls Collection of books, dolls, clothing, and accessories; Fisher-Price infant and preschool toys, including Little People figures and playsets and toys based on various licensed characters from sources such as Disney and Sesame Street; and games such as Scrabble and UNO. The company's toys are produced in company-owned manufacturing facilities in China, Indonesia, Malaysia, Mexico, and Thailand, as well as through independent contractors located in the United States, Europe, Mexico, the Far East, and Australia. Approximately 36 percent of 2002 revenues was generated outside the United States, with 60 percent of international sales originating in Europe. During 2002, about half of Mattel's revenues was derived through three main retail customers: Wal-Mart Stores, Inc., Toys 'R' Us, Inc., and Target Corporation. Mattel's toys have delighted generations of children throughout the world.

From Picture Frames to Toys: 1945-49

Mattel was founded in 1945 by Elliot and Ruth Handler. The youngest of ten children of Polish immigrants, Ruth was a secretary for Paramount Pictures in Los Angeles when she married Elliot Handler, an industrial engineer. Handler started out designing light fixtures but soon began making furniture to sell out of his garage. The business attracted four partners and quickly rose to become a $2 million enterprise making giftware and costume jewelry. By 1945 Elliot Handler grew restless and wanted a new business approach to remain competitive in the fast-changing postwar world. Handler's plans led to a dispute with his partners and he sold his interest in the company at a loss. Meanwhile, also in 1945, Ruth hooked up with an old friend, Harold "Matt" Matson, and they started Mattel Creations, with Elliot designing products. The name Mattel was formed by combining Matson's last name with Handler's first name. Ill health soon forced Matson to sell out.

Mattel first entered the picture frame business using scrap plastic and wood. With the leftover wood slats and plastic, Elliot Handler designed dollhouse furniture. Ruth Handler formed a simple sales organization, and the company was off to a winning start. In its first year the company pulled in $100,000, netting $30,000.

The Handlers had little business experience and even less capital, but the demographics of a baby boom plus a virtual toyless marketplace immediately after World War II gave them a unique opportunity to make their mark. Even so, it took a couple of years to see profits. In 1946 another low-cost line of molded furniture with meticulous detail put the Handlers out of the doll furniture business. Because of their introduction of a "birdy bank" and a "make-believe makeup set," however, they managed to break even, and in the following year the Handlers introduced the first in a long string of hits in the toy industry. The "Uke-A-Doodle," a miniature plastic ukelele, was an immediate success and drew large orders. In 1948 the Handlers introduced another hit--a new all-plastic piano with raised black keys. Although a winner, the company lost ten cents for each piano it sold because of quality problems relating to the die-cast sound mechanism breaking loose from the plastic.

These early business experiences taught the Handlers some poignant lessons in avoiding obsolescent products, ruinous price competition, poor cost control, and product quality problems. They realized that a successful business had to produce unique and original products of superior quality and strength that could not be copied easily by competitors.

The company incorporated in the state of California in 1948. At the same time the Handlers and an outside inventor began developing a music box employing a unique mechanism. A shortage of capital and the refusal of banks to gamble on the struggling young firm put the project on hold. With a $20,000 loan from Ruth Handler's brother-in-law, however, Mattel completed the project and produced another winner. As Elliot Handler later recalled, "Our music box had a patented mechanism which had continuous play value because it operated only when the child turned the crank. It was different, it was well-made, and because we were able to mass-produce it, the price was lower than the imports." By taking an Old World idea and adapting it to modern production techniques, the Handlers beat out their Swiss competition, which up to then had dominated the domestic market for music boxes.

The success of the music box taught the Handlers a few other lessons. First, they discovered that child participation was essential for any quality toy; children should be able to interact with a toy and want to play with it often and for extended periods of time. Second, the Handlers recognized that a toy with lasting appeal is preferable to short-lived faddish products and can serve as a basis for other toys to follow.

Innovation, Diversification, and Success: 1950-69

Mattel reached several important firsts in 1955. Sales climbed to $5 million; the company introduced another hit, Burp Guns; and the Handlers decided to take a gamble that would change the toy business forever. In what seemed a risky venture, the Handlers agreed to sponsor a 15-minute segment of Walt Disney's Mickey Mouse Club on the ABC television network. The Handlers signed for 52 weeks at a cost of $500,000, equal to Mattel's net worth at the time. Up until this time, toy manufacturers relied primarily on retailers to show and sell their products and advertising occurred only during the holiday season; never before had a toy company spent money on advertising year-round. With television, however, toys could be marketed directly to children throughout the country. Thus with the slogan, "You can tell it's Mattel, it's swell," the Handlers began a marketing revolution in the toy industry that produced an immediate payoff. The company sold many toy Burp Guns and made the Mattel brand name well known among the viewing audience.

In 1957 the company, exploiting the popularity of television westerns, introduced toy replicas of classic western guns and holsters. From the basic Burp Gun mechanism, Mattel developed the "Fanner 50" western pistol and a toy version of the Winchester rifle, complete with ejecting bullets. Mattel's sales reached $9 million and the following year hit $14 million. Then in 1959 Mattel made toy industry history with the introduction of the Barbie doll, the best-selling toy of all time. The idea for the doll originated with Ruth Handler, who had observed that their daughter favored adult-looking paper dolls over baby dolls. So the Handlers set to work designing a teenage fashion model doll and, despite a cool reception at the 1959 New York Toy Fair, the result was a smash hit, propelling Mattel into the national spotlight. Barbie, the famed doll named after the nickname of the Handlers' own daughter Barbara, soon prompted the founding of official fan clubs across the United States, which by 1968 had a total membership of about 1.5 million. Mattel marketed Barbie as an insatiable consumer of clothes and accessories, which were sold separately. In 1961 the company provided her with a boyfriend, the Ken doll.

After the phenomenal success of Barbie, Mattel entered the competitive large doll market in 1960 with another winner, Chatty Cathy, the first talking doll. That year Mattel made its first public stock offering, and by 1963 its common stock was listed on the New York Stock Exchange (NYSE). Mattel's sales skyrocketed from $26 million in 1963 to more than $100 million in 1965, due in part to the expansion of the Barbie line with Ken (named after the Handlers' son), Midge, and Skipper; Christie, an African American doll, debuted in 1968.

Throughout the 1960s the company continued to introduce popular toys: Baby First Step (the first doll to walk by itself), live-action dolls with moving eyes and mouths, See 'N Say talking educational toys, the Vac-U-Form machine, and an entire line of Thingmaker activity toys, including Creepy Crawlers, Fun Flowers, Fright Factory, and Incredible Edibles. Another spectacular hit, Hot Wheels miniature model cars, was introduced in 1968, which proved to be a pivotal year for Mattel as a host of its products dominated the market, including its original toy music boxes, which had sold more than 50 million. The company reincorporated in Delaware, and by the end of the decade it was the world's number one toy maker.

During the 1960s the company began aggressively diversifying its operations into a worldwide enterprise with a host of acquisitions: Dee & Cee Toy Co. Ltd. (1962); Standard Plastic Products, Inc., Hong Kong Industrial Co., Ltd., and Precision Moulds, Ltd. (1966); Rosebud Dolls Ltd. (1967); Monogram Models, Inc. and A&A Die Casting Company (1968); Ratti Vallensasca, Mebetoys, Ebiex S.A., H&H Plastics Co., Inc., and Metaframe Corp. (1969).

Stretched Too Thin: 1970s Through Mid-1980s

At the dawn of the 1970s, Mattel still was gobbling up other companies, such as Ringling Bros., Barnum & Bailey Circus and others. But the good times soon soured. In 1970 Mattel's plant in Mexico was destroyed by fire, and the following year a shipyard strike in the Far East cut off its toy supplies. To maintain the appearance of corporate growth, Seymour Rosenberg, executive vice-president and chief financial officer, fixed the books by reporting orders as sales, although many of the orders had been canceled and shipments had not been made. For two years Mattel issued false and misleading financial reports, until 1973, when the company reported a $32 million loss just three weeks after stockholders had been assured that the company was in sound financial condition. Mattel's stock plummeted and the Security and Exchange Commission (SEC) stepped in to investigate. Before Judge Robert Takasugi of the federal district court in Los Angeles, Ruth Handler and Rosenberg pleaded no contest to the SEC charges.

In 1974 Rosenberg was fired, the banks pressured the Handlers to resign, and the court ordered Mattel to restructure its board so that its majority would be company outsiders. In addition, the court fined Ruth Handler and Rosenberg each $57,000 and gave them 41-year sentences, which were suspended on the condition that they both performed 500 hours of charitable work annually for five years. Finally, in 1980 the Handlers cashed in most of their Mattel stock, ending their involvement in the company they had founded. Comprising approximately 12 percent of the company, the stock was worth about $18.5 million. Ruth Handler then went on to start Nearly Me, a company producing prosthetic breasts for mastectomy patients.

A new management team under Arthur S. Spear, a Mattel vice-president, replaced the Handlers in 1975 and by 1977 the company had returned to profitability. By 1980 Mattel was running a slew of other businesses, including the Ringling Bros., Barnum & Bailey Circus; Shipstad & Johnson's Ice Follies; Western Publishing, the largest publisher of children's books; and an entire line of electronic toys, most notably Intellivision video games.

Yet, unfortunately, Mattel stumbled badly for much of the 1980s. Many of the company's business acquisitions turned out to be unprofitable and had to be sold. Further, a big slump in video game sales in the early 1980s drove Mattel out of the video game business with a $394 million loss for 1983, putting the company on the edge of bankruptcy. Mattel might have gone under if the New York venture capital firms E.M. Warburg, Pincus & Co., and Drexel Burnham Lambert had not stepped in with $231 million in 1984 to save the company from the video game debacle. Still, in 1985 the company fell behind Hasbro, Inc. as the world's largest toymaker.

A New Direction: 1987-92

By 1987 Mattel suffered a $113 million loss when the market for its Masters of the Universe toy line for boys evaporated. As a result of Mattel's troubles, its stock plummeted from 1982's peak of $30 per share to just $10 per share in 1987. But the company's fortunes took a dramatic upswing when John W. Amerman, who had joined the company in 1980 as head of the international division, was named chairman. Under his direction the division's sales had quadrupled, far outpacing the profitability of Mattel's domestic operations. In his new role, Amerman moved quickly to cut Mattel's overhead by closing 40 percent of the company's manufacturing capacity, including plants in California, Taiwan, and the Philippines. He slashed the payroll by 150 at Mattel's corporate headquarters in California, saving an estimated $30 million annually. Mattel also refinanced high-cost debt and curbed advertising costs.

Amerman turned the company around by focusing on core brand names with staying power, such as Barbie and Hot Wheels, and by making selective investments in the development of new toys. One such selection was the re-emergence of Disney toys, due to a chance meeting in Tokyo, which, starting in 1988, gave Mattel licensing rights for a new line of infant and preschool plush toys. Renewing its collaboration with Disney proved more than serendipitous for Mattel, as their union in the 1990s would prove far more advantageous than Amerman ever imagined.

Despite a lackluster economy and generally flat sales in the toy industry, Amerman's strategy paid off big for Mattel. The Barbie line was bolstered and expanded to include approximately 50 different dolls per year and about 250 accessory items, including everything from shoes and clothing to linens, backpacks, furniture, and a cosmetics line. A promotional campaign in honor of Barbie's 30th birthday in 1989 propelled her onto the cover of Smithsonian Magazine, confirming her status as a true American icon. In 1990 Mattel moved from the Handlers' original offices to new headquarters in El Segundo, propelled in large part by Barbie's continuing popularity. By the next year the company estimated that 95 percent of all girls in the United States aged 3 to 11 owned several Barbie dolls; in fact, Barbie was so good for Mattel that between 1987 and 1992 sales shot up from $430 million to nearly $1 billion, accounting for about half of the company's $1.85 billion in sales. As a result of this phenomenal growth, Mattel opened a new state-of-the-art Barbie manufacturing plant in 1992 just outside Jakarta, Indonesia.

Mattel's emphasis on other core brands, including Hot Wheels die-cast vehicles, large dolls, Disney products, and See 'N Say educational preschool toys, provided a string of continuous hits. Mattel also pushed aggressively into other areas of the toy business, including plush toys, games, boys' action figures, and activity toys, which comprised 46 percent of the total toy market. By entering these areas, Mattel increased its participation in the total industry from 34 percent to approximately 80 percent, becoming a full-line toy company. The company made a particularly strong move into the toys for boys market, where it had been weak traditionally, with a range of new products, including the following: Bruno the Bad Dog (a monster truck that changed into a ferocious dog); action figures based on Arnold Schwarzenegger movies; and Nickelodeon's gooey Gak, a stretchy, oozing substance.

A strengthened strategic alliance with the Walt Disney Company allowed Mattel to sponsor attractions and to develop and sell toys at three Disney theme parks. The agreement gave Mattel unparalleled exposure to millions of children and adults who visited the parks each year. Mattel also negotiated the exclusive rights to sell dolls, stuffed characters, and preschool toys based on Disney movie characters, such as those from Cinderella, Beauty and the Beast, and Aladdin. The agreement was a boon for Mattel, and Amerman predicted that sales for the Disney line would top $500 million by 1995. Beyond Disney, Mattel also had reached an agreement with Hanna-Barbera to market toys based on the cartoon characters Yogi Bear, Boo-Boo, Cindy Bear, and the Flintstones; another agreement with Turner Broadcasting allowed Mattel to develop and sell Tom and Jerry products. A push into the game market led Mattel to acquire International Games, Inc. in 1992, the producer of such profitable core franchises as the UNO and Skip-Bo card games.

Mattel executives believed that the company's best growth opportunities for the mid-1990s were overseas markets, and sales for its international division exploded from $135 million in 1982 to $1.7 billion in 1992, with much of the sales through retail giants Toys 'R' Us and Wal-Mart. Overall net sales of Mattel products reached $2.6 billion, and Jill Barad, who had joined the company in 1981 as a product manager and had been most recently president of Mattel's U.S. operations, was promoted to president and COO of the company.

Bigger and Better Than Ever: 1993-98

In 1993 the company embarked on the landmark acquisition of venerable toy producer Fisher-Price Inc., the world's leading maker of toys for infants and preschoolers. The stock-for-stock deal, valued at $1.19 billion, bought Fisher-Price from the Quaker Oats Company and further cemented Mattel's unrivaled position in the toy industry. Year-end net sales hit $3.4 billion, and although Fisher-Price products contributed $750 million to the pie, Mattel had an extraordinary year--business was up a whopping 27 percent, aided by the sturdy dollar overseas. The distribution of sales relied heavily on Mattel's old standby, Barbie, with 35 percent or $1 billion, with Hot Wheels (5 percent or $150 million) and Disney (10 percent or $330 million) bringing in healthy shares, while other popular products like the Polly Pocket line, Mighty Max toys, and UNO card games brought in the rest. Mattel also doubled the capacity of its Indonesia plant; opened offices in Austria, Scandinavia, and New Zealand; and had hopes of adding others the next year in Portugal, as well as Argentina and Venezuela, in an effort to tap into Latin America's market of 120 million children. Latin America's child population was second only to Asia's at 800 million in 1993, far beyond the United States' 40 million and Europe's 70 million.

Mattel made two strategic acquisitions in 1994--those of J.W. Spear & Sons PLC, a British company that owned the international rights to the popular Scrabble games, and Kransco, whose Power Wheels and Wham-O (which included Frisbee and Hula Hoop) brands complemented its ever-growing products list. The next year Mattel became the new licensee of the Cabbage Patch Kids dolls, a top-notch addition to the company's large dolls line. Both 1994 and 1995 were record years for the company, with net sales of $4 billion and $4.4 billion, respectively, and net income of $225 million in 1994 and $338 million in 1995. The company also was looking to the future; it initiated a $72 million restructuring program in 1994 to consolidate manufacturing operations and slash unnecessary corporate expenses.

Also in 1995, Mattel approached Hasbro about a possible merger of the two largest toy companies in the world. Negotiations took place in secret over the course of several months until the Hasbro board early in 1996 unanimously turned down a $5.2 billion merger proposal that would have given Hasbro stockholders a 73 percent premium over the then current selling price. Hasbro officials expressed doubts that the merger could pass antitrust challenges and wanted a large upfront payment to help the company's performance during what would have likely been a lengthy antitrust review and to protect itself against the possibility that the merger would collapse. Mattel officials believed the merger would have had little difficulty gaining approval, but backed away--and did not initiate a hostile takeover--when Hasbro waged a vigorous media campaign emphasizing the possible negative ramifications of such a megamerger.

In 1996 sales grew to $4.5 billion, with income topping $372 million. The 38-year-old Barbie was once again the backbone of Mattel's net sales, hauling in $1.7 billion, up by 20 percent from the previous year. Hot Wheels sales also increased by nearly 20 percent, and Disney products were up 8 percent, surpassing the $500 million mark. International sales, however, were relatively flat--complicated by a strengthened dollar. At the end of the year Mattel initiated the acquisition of another major player in the toy industry, Tyco Toys, Inc., the third largest toy manufacturer in the United States. The merger of Tyco into Mattel's lineup, completed in March 1997, made the latter the unparalleled leader of the industry, far beyond any of its other competitors. Tyco's successful products, such as Sesame Street brand toys and its radio-controlled and electric race cars, bolstered Mattel's infant and preschool as well as boys' toy lines.

As the decade was coming to a close, a changing of the guard was imminent. John Amerman, who had turned Mattel away from slumping sales and mismanagement, retired as Mattel's chairman of the board after 17 years, tossing the reins to Barad, who had been promoted to CEO earlier in the year. At the time of her appointment as chairman in 1997, Barad was one of only two women running a Fortune 500 company.

Never one to rest on her laurels, Barad moved forward with new Barbie innovations and aggressive expansion. International sales climbed a cautious 3 percent (in local currency), with net sales at $1.2 billion for Canada and Europe and $2.1 billion in net sales from Asia and Latin America, representing a 35 percent jump for Latin America and the emergence of a market in Japan. Stateside, sales grew by 14 percent, with Barbie bringing in $1.9 billion, especially in the burgeoning interactive market, where Barbie-brand CD-ROMs quadrupled sales to $20 million. Even the adult collector market in Barbies had reached $200 million, with new Oscar de la Renta and Vera Wang designs slated to debut. Infant and preschool toys, meanwhile, were close on Barbie's heels, bringing in $1.8 billion in net sales despite a slump in Fisher-Price. Winnie the Pooh and Sesame Street more than took up the slack, generating $175 million and $350 million, respectively. During 1998 the Fisher-Price unit was given control of Mattel's complete lines of infant and preschool toys.

In early 1998 Mattel celebrated Barbie's 39th birthday. Continuing its interactive success, a new web site was introduced (Barbie.com), as well as new dolls, including one with an official WNBA uniform. The year also marked the 30th anniversary of Hot Wheels, with booming sales, as well as the 15th anniversary of Cabbage Patch Kids dolls. Barbie remained the bigger news, however, as the centerpiece of PBS's P.O.V., which dedicated an hour-long program to her evolution, entitled "Barbie Nation: An Unauthorized Tour." Although the program provided publicity, its content was sometimes controversial--dealing with the good, the bad, and the ugly, including some Barbie-inspired obsessions. Ruth Handler, extensively interviewed for the piece, vehemently supported her creation.

Still on the prowl for acquisitions, Mattel in July 1998 completed a $715 million purchase of Pleasant Company, the Wisconsin-based maker and direct marketer of the popular American Girl brand composed of books, dolls, clothing, accessories, and the American Girl magazine. Pleasant's founder and president, Pleasant Rowland, became Mattel's vice-chairman. The company also was gaining a reputation as an excellent employer, named one of the "100 Best Companies To Work For" by Forbes magazine, and similarly lauded by Working Mother for the fifth consecutive year. With a state-of-the-art in-house daycare center, health and fitness facility, half-day Fridays, and generous vacation days, which included shutting down operations the week between Christmas and New Year's, the toymaker seemed to provide employees with almost as much fun as consumers.

The Learning Company Debacle and Its Aftermath: 1999 and Beyond

Although Mattel's acquisition of Pleasant Company, which brought together the world's two largest girls' toy brands--Barbie and American Girl--proved highly successful, the company's next acquisition turned into a disaster. In May 1999 Mattel took over the Learning Company in a $3.5 billion deal. Based in Cambridge, Massachusetts, the Learning Co. was a major player in computer games and educational software, producing such "edutainment" titles as "Reader Rabbit" and "Carmen Sandiego." This acquisition was intended to broaden Mattel's product line and help Mattel sell more products that appeal to boys, but the Learning Co. began reporting unexpected losses before the deal was even completed. In October, Mattel announced that its earnings would fall well below expectations, prompting the departure one month later of Learning Co.'s two founders. For the year, Mattel reported a net loss of $82.4 million on sales of $5.52 billion, which reflected a $345 million charge stemming from a restructuring that involved some 3,000 job cuts as well as a fourth quarter Learning Co. loss of $183 million. The latter loss led to the abrupt resignation of Barad in February 2000, by which time Mattel's stock had plunged below $10 per share, after trading for more than $45 in 1998.

Robert A. Eckert was named chairman and CEO in May 2000. He had been the head of Philip Morris Companies Inc.'s Kraft Foods unit. In the meantime, Mattel in July 1999 had entered into a global marketing alliance with Bandai Co., Ltd., Japan's largest toy maker and best known at the time for its line of Power Rangers action figures and the Tamagotchi electronic virtual pets. Initially, the alliance involved Bandai marketing Mattel's toys in Japan and Mattel doing likewise for Bandai in Latin America. In February 2000 Mattel reached a deal with Warner Bros., making Mattel the master toy licensee for the best-selling Harry Potter book series and for the first two Harry Potter feature films. Mattel that same year gained the multiyear licensing rights to characters owned by the popular Nickelodeon children's cable television channel.

In October 2000, soon after Eckert came onboard, the Learning Co. was sold to Gores Technology Group, a corporate turnaround firm, for no cash and an unspecified share of future Learning Co. earnings. Mattel agreed to pay off $500 million in Learning Co. debt, and losses from the sale led to a net loss for 2000 of $430.9 million. The consequences of this disastrous acquisition--widely regarded as one of the biggest corporate blunders ever--were not over yet. Numerous lawsuits were filed by shareholders in 1999 and 2000 alleging mismanagement and breach of fiduciary duty by company executives and the board of directors. In November 2002 Mattel agreed to pay $122 million to settle these actions.

Eckert took a conservative approach to running Mattel, concentrating more on returning the firm to profitability than on seeking huge new blockbuster toys that would greatly increase revenues. As a result, revenues were relatively flat during his first two years at the helm (2001 and 2002), but net income figures were decent: $298.9 million and $230.1 million, respectively. Among the successes during this period were the Harry Potter products, a line of products derived from the Nickelodeon hit Sponge Bob Square Pants, and a line of big-eyed talking dolls called Diva Starz. As part of Eckert's strategy of expanding Mattel's core brands into additional product categories, the company in October 2001 released the first Barbie video, Barbie in the Nutcracker, which sold quite well. Overall, however, sales of the Barbie line were on the decline under pressure from new competitive dolls, particularly MGA Entertainment's hip Bratz dolls, which debuted in 2001. In the computer games sector, Mattel took a new partnership-oriented approach, entering into license agreements with computer games makers Vivendi Universal and T-HQ Inc. in 2001 for the development of interactive software games based on such Mattel brands as Barbie, American Girl, Hot Wheels, and Fisher-Price. On the licensing side, Mattel gave up licenses for toys based on new Disney movies, which tended to be hit-or-miss propositions, but kept the rights to established Disney characters such as Mickey and Minnie Mouse. Other early Eckert initiatives included cutting costs, speeding up toy production turnaround time, overhauling the supply chain, and placing additional emphasis on international sales.

In early 2003 Mattel streamlined its operations, consolidating its Boys/Entertainment and Girls divisions into a new business unit known as Mattel Brands. The Pleasant Company was separated from the Girls division and placed into a new unit called American Girl Brands. The firm's third unit, Fisher-Price Brands, remained unchanged. Meantime, while Mattel's doll lines were contending with the upstart Bratz dolls, Fisher-Price was under pressure from another upstart, LeapFrog Enterprises, Inc., which quickly became a leader in electronic learning toys after its founding in the mid-1990s. Fisher-Price responded in August 2003 with the launch of the PowerTouch system, through which youngsters could play--and learn--on interactive-learning books. PowerTouch competed directly with LeapFrog's popular LeapPad system, and LeapFrog was troubled enough by similarities between the two products to file a patent-infringement lawsuit against Fisher-Price in October.

Although some analysts were disappointed with the lack of revenue growth at Mattel, particularly the flat to declining sales in the United States, Eckert remained committed to improving bottom-line profits rather than the top line. International sales were growing at a double-digit percentage pace, enabling Mattel to expand its overall sales in the mid-single-digit range, which was actually a little better than the industry norm. Perhaps in the first decade of the 21st century the more measured approach of Eckert would serve Mattel better than the approaches of the leaders of the three previous decades--particularly because each of these decades included a major crisis that called into question the company's future.

Principal Subsidiaries: Fisher-Price Inc.; Mattel Factoring, Inc.; Mattel International Holdings B.V. (Netherlands); Mattel Investment, Inc.; Mattel Overseas, Inc.; Mattel Sales Corporation; Pleasant Company.

Principal Operating Units: Mattel Brands; Fisher-Price Brands; American Girl Brands.

Principal Competitors: Hasbro, Inc.; JAKKS Pacific, Inc.; LEGO Company; LeapFrog Enterprises, Inc.; Bandai Co., Ltd.; MGA Entertainment; TOMY Company, Ltd.

Mattel, Inc. History

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