Mattel 2006 Annual Report Download - page 41

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1 percentage point benefit from changes in currency exchange rates. Domestic gross sales of Barbie®decreased
21% and international gross sales of Barbie®decreased 7%, including a 1 percentage point benefit from changes
in currency exchange rates. Worldwide gross sales of Other Girls Brands increased 25% from 2004, including a
1 percentage point benefit from changes in currency exchange rates, primarily driven by sales of Disney
Princesses, Pound Puppies™and Pixel Chix™worldwide, and Winx Club™in international markets. Worldwide
gross sales in the Wheels category decreased 1% compared to 2004, including a 2 percentage point benefit from
changes in currency exchange rates. International gross sales increases in the Hot Wheels®and Tyco®R/C
product lines were more than offset by sales declines in the US. Worldwide gross sales in the Entertainment
category were flat with the prior year, including a 2 percentage point benefit from changes in currency exchange
rates. In the Entertainment category, growth in worldwide sales of Batman™products was partially offset by sales
declines in Yu-Gi-Oh!™and Harry Potter™worldwide, and JuiceBox™in the US.
Worldwide gross sales of Fisher-Price Brands increased 5% to $2.02 billion in 2005 compared to 2004, with
no impact from changes in currency exchange rates. Domestic gross sales increased 3%, while international gross
sales grew low double digits. Worldwide gross sales of Core Fisher-Price®increased 1% compared to 2004, with
no impact from changes in currency exchange rates, primarily driven by infant products and continued growth in
the BabyGear™line internationally. Worldwide gross sales of Fisher-Price®Friends increased 18% compared to
2004, with no impact from changes in currency exchange rates, mainly attributable to the continued strength of
the Dora the Explorer™property.
Gross sales of American Girl Brands increased 15% to $436.1 million in 2005 compared 2004, primarily
due to continued strong performance of the American Girl Place®retail stores and the direct channels, driven by
the success of the Marisol™doll and book from the Just Like You™contemporary line, and doll and book
products related to the American Girl®live-action, made-for-TV movies.
Cost of Sales
Cost of sales increased by $114.1 million, or 4%, from $2.69 billion in 2004 to $2.81 billion in 2005, as
compared to a 1% increase in net sales. On an overall basis, cost of sales increased primarily due to increased
sales volume, external cost pressures, and higher royalty costs for licensed products. Within cost of sales, product
costs increased by $74.7 million, or 3%, from $2.14 billion in 2004 to $2.21 billion in 2005, which was primarily
driven by increased sales volume and external cost pressures. Royalty expense increased by $21.1 million, or
10%, from $204.5 million in 2004 to $225.6 million in 2005, and is reflective of higher sales of licensed products
in 2005. Freight and logistics expenses increased by $18.2 million, or 5%, from $347.3 million in 2004 to
$365.5 million in 2005, which was primarily driven by increased sales volume and external cost pressures.
Gross Profit
Gross profit, as a percentage of net sales, was 45.8% in 2005 compared to 47.2% in 2004. The decrease in
gross profit, as a percentage of net sales, resulted from higher external cost pressures, higher sales of lower
margin products, including the impact of sales mix, and higher royalty costs. These factors were partially offset
by favorable changes in currency exchange rates and a moderate price increase implemented in January 2005.
Advertising and Promotion Expenses
Advertising and promotion expenses were 12.1% of net sales in 2005, compared to 12.6% in 2004.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $1.08 billion in 2005, or 20.8% of net sales, compared to
$1.04 billion in 2004, or 20.3% of net sales. Other selling and administrative expenses increased in 2005,
primarily due to the following:
• Higher external cost pressures and employee-related costs;
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