Mattel 2006 Annual Report Download - page 36

period unintentional stock option accounting errors (see Item 8 “Financial Statements and Supplementary Data—
Note 7 to the Consolidated Financial Statements”), costs associated with the opening of the third American Girl
Place®retail store in April 2006 and the acquisition of Radica in October 2006, partially offset by savings related
to the streamlining of the Mattel Brands organization. Other non-operating (income), net in 2005 included gains
from the sale of marketable securities of $25.8 million. There were no gains or losses from the sale of marketable
securities in 2006.
Net income in 2006 was positively impacted by the Tax Act passed in May, and income tax benefits of
$63.0 million related to settlements of multiple ongoing audits by foreign tax authorities and a settlement with a
state tax authority for tax years 1997 and 1998. 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 The American Jobs Creation Act (the “Jobs Act”), partially offset by $38.6 million of tax
benefits primarily relating to audit settlements with certain tax authorities in both the US and abroad.
Shares repurchased under Mattel’s share repurchase program resulted in a benefit to Mattel’s earnings per
share in 2006 when compared to 2005, by reducing the average number of common shares outstanding. Since
inception of the share repurchase program in July 2003, Mattel has repurchased 68.1 million shares, representing
15% of common shares outstanding.
The following table provides a summary of Mattel’s consolidated results for 2006 and 2005 (in millions,
except percentage and basis point information):
For the Year
2006 2005 Year/Year Change
Amount
% of Net
Sales Amount
% of Net
Sales %
Basis Points
of Net Sales
Net sales ............................... $5,650.2 100.0% $5,179.0 100.0% 9%
Gross profit ............................ $2,611.8 46.2% $2,372.9 45.8% 10% 40
Advertising and promotion expenses ......... 651.0 11.5 629.1 12.1 3% (60)
Other selling and administrative expenses .... 1,232.0 21.8 1,079.3 20.8 14% 100
Operating income ........................ 728.8 12.9 664.5 12.8 10% 10
Interest expense ......................... 79.9 1.4 76.5 1.5 4% (10)
Interest (income) ........................ (30.5) –0.5 (34.2) –0.7 –11% 20
Other non-operating (income), net ........... (4.4) (29.8)
Income before income taxes ............... $ 683.8 12.1% $ 652.0 12.6% 5% (50)
Sales
Net sales for 2006 were $5.65 billion, a 9% increase compared to $5.18 billion in 2005, including a
1 percentage point benefit from changes in currency exchange rates. Gross sales within the US increased 8%
from 2005 and accounted for 56% of consolidated gross sales in 2006 and 2005. In 2006, gross sales in
international markets increased 11% compared to 2005, including a 2 percentage point benefit from changes in
currency exchange rates.
Worldwide gross sales of Mattel Girls & Boys Brands increased 9% to $3.42 billion in 2006 compared to
2005, including fourth quarter sales of Radica:®products and a 1 percentage point benefit from changes in
currency exchange rates. Domestic gross sales increased 10% and international gross sales increased 8%,
including a 2 percentage point benefit from changes in currency exchange rates. Worldwide gross sales of
Barbie®were flat, including a 1 percentage point benefit from changes in currency exchange rates. Domestic
gross sales of Barbie®increased 3% and international gross sales of Barbie®decreased 2%, including a
2 percentage point benefit from changes in currency exchange rates. Worldwide gross sales of Other Girls Brands
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