Mattel 2007 Annual Report Download - page 17

quarters of its fiscal year. Seasonal shipping patterns result in significant peaks in the third and fourth quarters in
the respective levels of inventories and accounts receivable, which result in seasonal working capital financing
requirements. See “Seasonal Financing.”
Product Design and Development
Through its product design and development group, Mattel regularly refreshes, redesigns, and extends
existing toy product lines and develops innovative new toy product lines for all segments. Mattel believes its
success is dependent on its ability to continue this activity effectively. See Item 1A “Risk Factors—Factors That
May Affect Future Results.” Product design and development activities are principally conducted by a group of
professional designers and engineers employed by Mattel. During 2007, 2006, and 2005, Mattel spent
$189.4 million, $173.5 million, and $182.0 million, respectively, in connection with the design and development
of products, exclusive of royalty payments. See Item 8 “Financial Statements and Supplementary Data—Note 12
to the Consolidated Financial Statements—Supplemental Financial Information.”
Additionally, independent toy designers and developers bring concepts and products to Mattel and are
generally paid a royalty on the net selling price of products licensed to Mattel. These independent toy designers
may also create different products for other toy companies.
Advertising and Marketing
Mattel supports its product lines with extensive advertising and consumer promotions. Advertising takes
place at varying levels throughout the year and peaks during the traditional holiday season. Advertising includes
television and radio commercials, and magazine and newspaper advertisements. Promotions include in-store
displays, sweepstakes, merchandising materials, and major events focusing on products and tie-ins with various
consumer products companies.
During 2007, 2006, and 2005, Mattel incurred expenses of $708.8 million (11.9% of net sales),
$651.0 million (11.5% of net sales), and $629.1 million (12.1% of net sales), respectively, for advertising and
promotion.
Sales
Mattel’s products are sold throughout the world. Products within the Domestic segment are sold directly to
retailers, including discount and free-standing toy stores, chain stores, department stores, other retail outlets and,
to a limited extent, wholesalers by Mattel Girls & Boys Brands US and Fisher-Price Brands US. Mattel also
operates several small retail outlets, generally near or at its corporate headquarters and distribution centers as a
service to its employees and as an outlet for its products. American Girl Brands products are sold directly to
consumers and its children’s publications are also sold to certain retailers. Mattel has five retail stores,
American Girl Place®in Chicago, Illinois, New York, New York, and Los Angeles, California, and
American Girl Boutique and Bistro™in Atlanta, Georgia, and Dallas, Texas, each of which features children’s
products from the American Girl Brands segment. The American Girl Boutique and Bistro™opened in Atlanta,
Georgia in August 2007 and Dallas, Texas in November 2007. American Girl Brands also has a retail outlet in
Oshkosh, Wisconsin that serves as an outlet for excess product. Products within the International segment are
sold directly to retailers and wholesalers in most European, Latin American, and Asian countries, and in
Australia, Canada, and New Zealand, and through agents and distributors in those countries where Mattel has no
direct presence. Mattel also has retail outlets in Latin America and Europe as an outlet for its products.
Additionally, Mattel sells certain of its products online through its website.
During 2007, Mattel’s three largest customers (Wal-Mart at $1.1 billion, Toys “R” Us at $0.7 billion, and
Target at $0.6 billion) accounted for approximately 41% of worldwide consolidated net sales in the aggregate.
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