Mattel 2008 Annual Report Download - page 35

underperformance of toys associated with the 2008 Barbie®entertainment property, Barbie and the Diamond
Castle™, as compared to the 2007 entertainment property, Barbie as the Island Princess™. Gross sales of Other
Girls Brands increased 10%, including a 1 percentage point benefit from changes in currency exchange rates,
primarily due to sales of High School Musical™and Hanna Montana™products and higher sales of Little
Mommy®, partially offset by sales declines for Pixel Chix®and Polly Pocket®. Gross sales of Wheels products
decreased 2%, including a 2 percentage point benefit from changes in currency exchange rates. Gross sales of
Entertainment products increased by 1%, including a 1 percentage point benefit from changes in currency
exchange rates, primarily driven by sales of products tied to the Batman®:The Dark Knight™,Speed Racer®, and
Kung Fu Panda®movie properties. Fisher-Price Brands gross sales increased 1%, with no impact from changes
in currency exchange rates, primarily driven by strong sales of Core Fisher-Price®products, partially offset by
sales declines of Fisher-Price®Friends products. International segment income decreased 15% to $357.6 million
in 2008, primarily due to lower gross profit driven by higher input costs, higher costs of distribution, and mix,
partially offset by the benefit of price increases, favorable changes in currency exchange rates, and lower product
recall costs as compared to 2007, and higher other selling and administrative expenses.
2007 Compared to 2006
Consolidated Results
Net sales for 2007 were $5.97 billion, a 6% increase as compared to $5.65 billion in 2006, including
a 3 percentage point benefit from changes in currency exchange rates. Net income for 2007 was $600.0 million,
or $1.54 per diluted share, as compared to net income of $592.9 million, or $1.53 per diluted share, for 2006.
Gross profit, as a percentage of net sales, increased to 46.5% in 2007 from 46.2% in 2006. The increase in
gross profit was driven by price increases and favorable changes in currency exchange rates, which were partially
offset by external cost pressures and the impact of the 2007 Product Recalls, which reduced gross profit by
approximately $71 million.
Income before income taxes as a percentage of net sales declined to 11.8% in 2007 from 12.1% in 2006.
Contributing to this decline were higher selling and administrative expenses as a percentage of net sales and
higher advertising expenses as a percentage of net sales, partially offset by higher gross margins, lower interest
expense, and higher other non-operating income. The increase in other selling and administrative expenses in
2007 is primarily attributable to the impact of the 2007 Product Recalls, which increased other selling and
administrative expenses by approximately $35 million. Higher investments in the business, including design and
development costs and expansion in international markets, the impact of foreign exchange rates, increases in
employee-related costs, and the inclusion of Radica®costs also contributed to the increase. These costs increases
were partially offset by lower 2007 incentive and equity compensation expenses. Other selling and administrative
expenses in 2006 included $19.3 million for prior period unintentional stock option accounting errors. Other
non-operating income, net increased from $4.3 million in 2006 to $11.0 million in 2007, primarily due to foreign
currency exchange gains.
Net income in 2007 was positively impacted by net tax benefits related to prior years of $42.0 million due to
reassessments of tax exposures based on the status of current audits in various jurisdictions around the world,
including settlements, partially offset by enacted tax law changes. Net income in 2006 was positively impacted
by the Tax Act passed in May 2006 and tax benefits of $63.0 million related to settlements and refunds of
multiple ongoing audits by foreign and state tax authorities.
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