Mattel 2006 Annual Report Download - page 3

Your company had a good year in 2006. Given our strong momentum and the plans we have in place, I have
never been more optimistic about Mattel’s future prospects. Our overarching goal now is to capture that
opportunity and build on our success.
When I fi rst joined the toy industry, I acknowledged the phenomenon industry pundits call “Kids Getting Older
Younger.” While it is true that today’s children have more free-time options, electronic gadgets and demands
on their schedules, too many people focus on the toy industry’s age compression issue instead of its many
opportunities. The one statistic that usually goes untold is, for example, the fact that toy sales for children 10
years old and younger consistently continue to grow. This is particularly relevant to Mattel, as this is the age
range where Mattel does the majority of its business.
In last year’s letter, I highlighted the two key challenges facing Mattel: U.S. sales declines in Barbie® and pressure
on our gross margins from external costs, particularly for raw materials and transportation. We have made solid
progress addressing both of these issues. Domestic gross sales of Barbie® were up 3 percent for the year, with
four consecutive quarters of U.S. growth for the brand. Gross margins grew 40 basis points to 46.2 percent, the
fi rst increase since 2003, as price increases and supply chain savings more than offset external cost pressures
and unfavorable product mix. While we are pleased with the progress on both fronts, we are also mindful of the
need to sustain improved performance trends.*
Mattel’s overall business enjoyed terrifi c growth in 2006, with global net sales up
9 percent. We clearly benefited from the strong sales of movie-related toys for
Disney/Pixar’s CARS™ and Warner Bros’. Superman™ blockbusters, but we also had a
solid year with Polly Pocket,
® Pixel Chix, ® our games business, core Fisher-Price® and,
of course, Fisher-Price® Friends, whose T.M.X.™ Elmo was named Toy of the Year by
the Toy Industry Association. The Fisher-Price® Friends group also benefi ted from nice
increases in Nickelodeon’s Dora the Explorer™ and Go-Diego-Go!™ properties.
Neil Friedman, who is responsible for our Girls, Boys and Fisher-Price® divisions as president of Mattel Brands,
told me in mid-2000 when I joined the industry: “when we innovate, we grow.” Combining superb execution
with innovation, Neil’s Mattel Brands’ U.S. business – considered to be in a “mature” business environment –
grew with an impressive 9 percent increase in gross sales last year.*
to our shareholders:
OUR OVERALL
BUSINESS ENJOYED
TERRIFIC GROWTH
IN 2006
2006 WAS A YEAR OF MOMENTUM AND OPPORTUNITY
* Information required by SEC Regulation G regarding gross sales, a non-GAAP fi nancial measure, appears on page 53 of the enclosed Mattel, Inc. Annual Report on Form 10-K.