Mattel 2005 Annual Report Download - page 36

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International Segment
The following table provides a summary of percentage changes in gross sales within the International
segment in 2005 versus 2004:
Non-US Regions:
% Change in
Gross Sales
Impact of Change in
Currency Rates
(in % pts)
Europe ....................................................... — (1)
Latin America ................................................. 23 8
Asia Pacific ................................................... 7 2
Other ........................................................ (3) 5
Total International .............................................. 5 1
International gross sales increased 5% in 2005 compared to 2004, including a 1 percentage point benefit
from changes in currency exchange rates. Gross sales of Barbie®decreased 7%, including a 1 percentage point
benefit from changes in currency exchange rates and gross sales of Other Girls Brands increased double-digits,
including a 2 percentage point benefit from changes in currency exchange rates, primarily driven by increased
sales of Disney Princesses, Pound Puppies™and Winx Club™. Gross sales in the Wheels category grew by mid
single-digits in 2005 compared to 2004, mainly due to growth in sales of Hot Wheels®products. Gross sales in
the Entertainment category increased by double-digits in 2005 compared to 2004, primarily due to strong sales in
the male-action properties including Batman™, Robots™and MegaMan™, partially offset by declines in
Harry Potter™and Yu-Gi-Oh!™properties. Fisher-Price Brands gross sales increased 11%, including a 1
percentage point benefit from changes in currency exchange rates, due to strong growth in Core Fisher-Price®
products, primarily infant and BabyGear™lines, and Fisher-Price®Friends, mainly Dora the Explorer™
properties. International segment income increased 6% to $316.2 million in 2005, as a result of an increase in
sales volume, benefits from changes in currency exchange rates and a modest price increase, partially offset by
increased external cost pressures, higher employee-related costs and investments in emerging international
markets.
2004 Compared to 2003
Consolidated Results
Net sales for 2004 were $5.10 billion, a 3% increase compared to $4.96 billion in 2003, including a benefit
from changes in currency exchange rates of 2 percentage points. Net income for 2004 was $572.7 million, or
$1.35 per diluted share, as compared to net income of $537.6 million, or $1.22 per diluted share, for 2003. Gross
profit, as a percentage of net sales, declined from 49.0% in 2003 to 47.2% in 2004. Sales of lower margin products,
including the impact of sales mix, value enhancement initiatives, change in classification of close out sales, higher
royalty costs and ongoing external cost pressures were the primary drivers for the decline in gross profit. Income
generated from operations before income taxes declined in absolute dollars and as a percentage of net sales in 2004
compared to 2003. Contributing to this decline was a pre-tax charge of $16.2 million, primarily related to the
elimination of approximately 285 positions as a result of headcount reductions at certain domestic and international
locations, and integration of the Matchbox®and Tyco®R/C business located in New Jersey into the Hot Wheels®
business in California to take advantage of synergies in the Wheels business. These increased costs were partially
offset by gains on the sale of investments, net favorable legal settlements and a positive benefit from changes in
currency exchange rates. A settlement with the IRS resulted in a net benefit of $65.1 million in the 2004 provision
for income taxes in the consolidated statement of operations. Net income for 2003 included a pre-tax charge of
$26.3 million ($20.0 million after-tax) related to the financial realignment plan, which was completed in 2003. In
2003, Mattel also recognized pre-tax income of $7.9 million ($5.0 million after-tax) representing an adjustment to a
reserve accrued in 1999 associated with the closure of a manufacturing facility in Beaverton, Oregon. The combined
effect of these items was a net after-tax charge of $15.0 million for 2003.
Shares repurchased under Mattel’s share repurchase program resulted in a benefit to Mattel’s earnings per
share in 2004 when compared to 2003, by reducing the average number of common shares outstanding.
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