Mattel 2004 Annual Report Download - page 31

exchange rate changes. See Item 8 “Financial Statements and Supplementary Data—Note 9 to the Consolidated
Financial Statements” for a discussion of the shareholder litigation.
At year end 2004, the pre-tax unrealized gains on marketable securities held by Mattel were $26.1 million
($16.4 million after-tax). Prospectively, management expects to periodically sell additional marketable securities.
Provision for Income Taxes
In the fourth quarter of 2004, Mattel reached a settlement with the IRS regarding the examination of
Mattel’s US federal income tax returns for the years 1998 through 2001. The settlement resulted in a net benefit
of $65.1 million from changes in tax estimates, and the benefit is reflected in the 2004 provision for income taxes
in the consolidated statement of income.
Business Segment Results
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. Business Segment Results should be read in conjunction with
Item 8 “Financial Statements and Supplementary Data—Note 11 to the Consolidated Financial Statements.”
Domestic Segment
Mattel Brands US gross sales decreased 5% in 2004 compared to 2003. Within this segment, gross sales of
Barbie®declined 15%, partially offset by strong sales growth in the Entertainment category. Management
believes that Mattel Brands US segment sales continue to be negatively impacted by a continued reduction in
inventory of Mattel products held by retailers and continued competitive challenges. During 2004, management
developed a new strategy designed to regain relevance with girls by making improvements in the product line
and launching a new brand campaign highlighting a fresher image, which resulted in improved performance at
retail and increased category share. During 2005, management intends to focus on restoring retailer confidence in
the Barbie®brand by continuing to improve sell-through of Barbie®product at retail. Mattel Brands US segment
income decreased 16% to $326.3 million in 2004, primarily due to lower sales volume and a decline in gross
profit resulting from increased sales of lower margin products, including the impact of sales mix, value
enhancement initiatives, increased royalty costs and ongoing external cost pressures.
Fisher-Price Brands US gross sales increased 4%, reflecting an increase in sales of Core Fisher-Price®
products, mainly in the infant and preschool and BabyGear™lines and Fisher-Price®Friends, driven by the
expansion of learning-related products and strong sales growth from new product introductions featuring
Dora the Explorer™and Winnie the Pooh. These sales increases were partially offset by a decrease in sales of
Power Wheels®. Fisher-Price Brands US segment income decreased 4% to $173.2 million in 2004, primarily due
to increased sales of lower margin products, including the impact of sales mix, and higher product costs,
including transportation and royalty costs, partially offset by higher sales volume.
American Girl Brands gross sales increased 10%, primarily as a result of the success of the American Girl
Place®retail store in New York City, which opened in November 2003, and increased sales of The American
Girls Collection®dolls and accessories driven by the first American Girl®live-action, made-for-TV movie,
which aired in November 2004. American Girl Brands segment income increased 25% to $77.5 million in 2004,
driven by higher sales volume and improved gross profit, partially offset by higher overhead costs associated
with its American Girl Place®retail store in New York City.
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