Mattel 2005 Annual Report Download - page 37

In the second quarter of 2004, a major thunderstorm damaged a Mattel distribution center located in Texas,
which warehouses and distributes finished product for Mattel. Mattel carried insurance for this risk and in the
fourth quarter of 2004, Mattel settled its claim with its insurance carrier. This event did not have a material
impact on the results of operations for 2004.
The following table provides a summary of Mattel’s consolidated results for 2004 and 2003 (in millions,
except percentage and basis point information):
For the Year
2004 2003 Year/Year Change
Amount
% of Net
Sales Amount
% of Net
Sales %
Basis Points
of Net Sales
Net sales ................................. $5,102.8 100.0% $4,960.1 100.0% 3%
Gross profit .............................. $2,410.7 47.2% $2,429.5 49.0% –1% (180)
Advertising and promotion expenses ........... 643.0 12.6 636.1 12.8 1% (20)
Other selling and administrative expenses ....... 1,036.9 20.3 1,002.9 20.3 3% —
Restructuring and other charges ............... — — 4.8 0.1 –100% (10)
Operating income .......................... 730.8 14.3 785.7 15.8 –7% (150)
Interest expense ........................... 77.8 1.5 80.6 1.6 –3%
Interest (income) .......................... (19.7) –0.4 (18.9) –0.4 4%
Other non-operating (income), net ............. (23.5) (16.8) 40%
Income before income taxes ................. $ 696.2 13.6% $ 740.8 14.9% –6% (130)
Sales
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. Gross sales within the US remained flat with
2003 and accounted for 58% of consolidated gross sales in 2004 compared to 60% in 2003. In 2004, gross sales
in international markets increased 7% compared to 2003, including a benefit from changes in currency exchange
rates of 5 percentage points.
During the fourth quarter of 2003, Mattel changed the way certain close out sales were classified in its
consolidated statement of operations. Close out sales are sales of certain products that are no longer included in
current product lines. These sales were previously classified as a reduction of cost of sales. Effective
October 1, 2003, close out sales are reported as net sales in Mattel’s consolidated statements of operations. This
change in classification had no impact on gross profit, net income, net income per common share, balance sheets
or cash flows for any date or period presented. For the fourth quarter of 2003, close out sales, which were
included in reported net sales, were $19.2 million. In 2004, close out sales represented 80 basis points of sales
growth for the year, and had a negative impact on gross profit, as a percentage of net sales, of 40 basis points. For
the first three quarters of 2003, close out sales classified as a reduction of cost of sales were $38.1 million. See
Item 6 “Selected Financial Data” and Item 8 “Financial Statements and Supplementary Data—Notes 1, 11 and 12
to the Consolidated Financial Statements.”
Worldwide gross sales of Mattel Girls & Boys Brands decreased 1% to $3.2 billion in 2004 compared to
2003, including a 3 percentage point benefit from changes in currency exchange rates. Domestic gross sales
decreased 5% and international gross sales increased 4%, including a 6 percentage point benefit from changes in
currency exchange rates. Worldwide gross sales of Barbie®decreased 8% from 2003, including a benefit from
changes in currency exchange rates of 3 percentage points. Domestic gross sales of Barbie®decreased 15% and
international gross sales of Barbie®decreased 3%, including a 5 percentage point benefit from changes in
currency exchange rates. Worldwide gross sales of Other Girls Brands decreased 10% from 2003, including a
3 percentage point benefit from changes in currency exchange rates. Sales of new product introductions in Other
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