Mattel 2005 Annual Report Download - page 35

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Non-Operating Items
Interest expense decreased from $77.8 million in 2004 to $76.5 million in 2005 due to lower average debt in
2005, partially offset by higher average short-term borrowing rates. Interest income increased from $19.7 million
in 2004 to $34.2 million in 2005, primarily as a result of higher interest rates. Other non-operating (income), net
was $29.8 million in 2005, comprised mainly of a $25.8 million gain from the sale of marketable securities.
Other non-operating (income), net was $23.5 million in 2004, comprised mainly of a $22.1 million gain from the
sale of marketable securities.
As of December 31, 2005, Mattel held no marketable securities. As of December 31, 2004, the pre-tax
unrealized gains on marketable securities held by Mattel were $26.1 million ($16.4 million after-tax).
Provision for Income Taxes
Net income in 2005 was negatively impacted by incremental tax expense of $107.0 million, resulting from
Mattel’s decision to repatriate $2.4 billion in previously unremitted foreign earnings under AJCA and was
positively impacted by $38.6 million of tax benefit relating to audit settlements with certain tax authorities and
the reassessment of tax exposures based on the status of current audits in both the U.S. and abroad. Net income in
2004 was positively impacted by a $65.1 million tax benefit related to an audit settlement with the IRS.
Operating Segment Results
Mattel’s operating 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 Girls & Boys Brands US,
Fisher-Price Brands US and American Girl Brands. Operating 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 Girls & Boys Brands US gross sales decreased 10% in 2005 compared to 2004. Within this segment,
gross sales of Barbie®declined 21% and gross sales of Other Girls Brands increased double-digits, primarily driven
by increased sales of Disney Princesses, Pound Puppies™and Pixel Chix™. Gross sales in the Wheels category
decreased 8% driven by sales declines in all the Wheels brands. Gross sales in the Entertainment category decreased
double digits, primarily driven by sales declines in Yu-Gi-Oh!™and JuiceBox™which offset strong sales of
Batman™products. Management believes that Mattel Girls & Boys 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. Mattel Girls & Boys Brands US segment income decreased 37% to $206.5 million in 2005,
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, increased royalty costs and ongoing external cost pressures.
Fisher-Price Brands US gross sales increased 3%, reflecting an increase in sales of Fisher-Price®Friends,
driven by the continued success of the Dora the Explorer™property. Sales increases in Fisher-Price®Friends
were partially offset by a decrease in sales of Power Wheels®and a decrease in sales of Core Fisher Price®
products, which included strong sales of infant and BabyGear™lines. Fisher-Price Brands US segment income
was $173.0 million in 2005, which was flat compared to 2004, primarily due to higher sales volume offset by
higher employee-related costs, additional investment in product design and development, and ongoing external
cost pressures.
American Girl Brands gross sales increased 15%, primarily as a result of the 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. American Girl Brands segment income increased 37% to $106.2 million in
2005, driven by higher sales volume, improved gross profit, and tight management of costs.
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