Mattel 2005 Annual Report Download - page 34

gross sales in the Wheels category decreased 1% compared to 2004, including a 2 percentage point benefit from
changes in currency exchange rates. International gross sales increases in the Hot Wheels®and Tyco®R/C
product lines were more than offset by sales declines in the US. Worldwide gross sales in the Entertainment
category were flat with the prior year, including a 2 percentage point benefit from changes in currency exchange
rates. In the Entertainment category, growth in worldwide sales of Batman™products was partially offset by sales
declines in Yu-Gi-Oh!™and Harry Potter™worldwide, and JuiceBox™in the US.
Worldwide gross sales of Fisher-Price Brands increased 5% to $2.02 billion in 2005 compared to 2004, with
no impact from changes in currency exchange rates. Domestic gross sales increased 3%, while international gross
sales grew low double digits. Worldwide gross sales of Core Fisher-Price®increased 1% compared to 2004, with
no impact from changes in currency exchange rates, primarily driven by infant products and continued growth in
the BabyGear™line internationally. Worldwide gross sales of Fisher-Price®Friends increased 18% compared to
2004, with no impact from changes in currency exchange rates, mainly attributable to the continued strength of
the Dora the Explorer™property.
Gross sales of American Girl Brands increased 15% to $436.1 million in 2005 compared 2004, primarily
due to continued strong performance of the American Girl Place®retail stores and the direct channels, driven by
the success of the Marisol™doll and book from the Just Like You™contemporary line, and doll and book
products related to the American Girl®live-action, made-for-TV movies.
Gross Profit
Gross profit, as a percentage of net sales, was 45.8% in 2005 compared to 47.2% in 2004. The decrease in
gross profit, as a percentage of net sales, resulted from higher external cost pressures, higher sales of lower
margin products, including the impact of sales mix, and higher royalty costs. These factors were partially offset
by favorable changes in currency exchange rates and a moderate price increase implemented in January 2005.
Advertising and Promotion Expenses
Advertising and promotion expenses were 12.1% of net sales in 2005, compared to 12.6% in 2004. Mattel
expects advertising spending levels for 2006 to be fairly consistent with its 11%-13% historical range to support
its plan to invest in the business to drive long-term performance.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $1.08 billion in 2005, or 20.8% of net sales, compared to
$1.04 billion in 2004, or 20.3% of net sales. Other selling and administrative expenses increased in 2005,
primarily due to the following:
• Higher external cost pressures and employee-related costs;
• Investments in growth initiatives including new product design and development and higher overhead
costs in 2005 associated with the American Girl Place®retail store in Los Angeles that will open in 2006;
and
• Net favorable legal settlements in 2004 that did not recur in 2005.
The consolidation of its Mattel Girls & Boys Brands US and Fisher-Price Brands US divisions into one
division included the elimination of executive-level positions and resulted in severance charges totaling
$7.1 million in 2005, of which $6.1 million resulted from the elimination of the position of president of the
Mattel Girls & Boys Brands US division. The overall increase in other selling and administrative expenses was
partially offset by a $16.2 million charge for severance in 2004 related to the elimination of approximately 285
positions, resulting from headcount reductions and the relocation of the Matchbox®and Tyco®R/C brands from
New Jersey to California and lower incentive compensation in 2005.
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