Mattel 2006 Annual Report Download - page 40

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were the primary drivers for the decline in gross profit, partially offset by a moderate price increase implemented
in January 2005 and favorable changes in currency exchange rates.
Income before income taxes declined as a percentage of net sales in 2005 compared to 2004. Contributing to
this decline were overall lower gross margins, higher selling, general and administrative costs due to upward cost
pressures for employee-related expenses and ongoing investments in growth strategies including new product
design and expansion of our American Girl Place®retail stores, partially offset by lower incentive compensation,
lower advertising expenses and favorable changes in currency exchange rates. Income before income taxes in
2004 was negatively impacted by a pre-tax charge of $16.2 million, primarily related to the elimination of
approximately 285 positions as a result of headcount reductions, and integration of the Matchbox®and
Tyco®R/C business into the Hot Wheels®business in California, partially offset by net favorable legal
settlements.
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 Jobs Act, partially
offset by $38.6 million of tax benefit primarily relating to audit settlements with certain tax authorities in both
the US and abroad. Net income in 2004 was positively impacted by a $65.1 million tax benefit related to an audit
settlement with the IRS.
Shares repurchased under Mattel’s share repurchase program resulted in a benefit to Mattel’s earnings per
share in 2005 when compared to 2004, by reducing the average number of common shares outstanding.
The following table provides a summary of Mattel’s consolidated results for 2005 and 2004 (in millions,
except percentage and basis point information):
For the Year
2005 2004 Year/Year Change
Amount
% of Net
Sales Amount
% of Net
Sales %
Basis Points
of Net Sales
Net sales ................................... $5,179.0 100.0% $5,102.8 100.0% 1%
Gross profit ................................ $2,372.9 45.8% $2,410.7 47.2% –2% (140)
Advertising and promotion expenses ............ 629.1 12.1 643.0 12.6 –2% (50)
Other selling and administrative expenses ........ 1,079.3 20.8 1,036.9 20.3 4% 50
Operating income ............................ 664.5 12.8 730.8 14.3 –9% (150)
Interest expense ............................. 76.5 1.5 77.8 1.5 –2% —
Interest (income) ............................ (34.2) –0.7 (19.7) –0.4 74% (30)
Other non-operating (income), net .............. (29.8) (23.5)
Income before income taxes ................... $ 652.0 12.6% $ 696.2 13.6% –6% (100)
Sales
Net sales for 2005 were $5.18 billion, a 1% increase compared to $5.10 billion in 2004, including a
1 percentage point benefit from changes in currency exchange rates. Gross sales within the US decreased 2%
from 2004 and accounted for 56% of consolidated gross sales in 2005 compared to 58% in 2004. In 2005, gross
sales in international markets increased 5% compared to 2004, including a 1 percentage point benefit from
changes in currency exchange rates.
Worldwide gross sales of Mattel Girls & Boys Brands decreased 3% to $3.14 billion in 2005 compared to
2004, including a 1 percentage point benefit from changes in currency exchange rates. Domestic gross sales
decreased 10% and international gross sales increased 3%, including a 1 percentage point benefit from changes
in currency exchange rates. Worldwide gross sales of Barbie®decreased 13% from 2004, including a
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