Mattel 2009 Annual Report Download - page 42

Fantasy, Barbie Girls®MP3 Player, and My Scene®products. Lower sales in Barbie®Fantasy products in
international markets were driven by the underperformance of toys associated with the 2008 Barbie®
entertainment property, Barbie & the Diamond Castle®, as compared to the 2007 entertainment property, Barbie
as the Island Princess®. Worldwide gross sales of Other Girls Brands increased 11% from 2007, including a
1 percentage point benefit from changes in currency exchange rates, primarily driven by higher sales of High
School Musical®, Little Mommy®, and Hannah Montana®internationally, partially offset by sales declines for
Pixel Chix®and Polly Pocket®. Worldwide gross sales of Wheels products increased 4% as compared to 2007,
including a 1 percentage point benefit from changes in currency exchange rates, primarily due to Speed Racer®
sales. Worldwide gross sales of Entertainment products, which includes games and puzzles and Radica®,
decreased by 4% as compared to 2007, including a 1 percentage point benefit from changes in currency exchange
rates, primarily driven by sales declines in CARS™, interactive games, and Radica®products, partially offset by
increased sales of products tied to the Batman®:The Dark Knight®movie property.
Worldwide gross sales of Fisher-Price Brands decreased 3% to $2.36 billion in 2008, as compared to 2007,
including a 1 percentage point benefit from changes in currency exchange rates. Worldwide gross sales of Fisher-
Price®Friends decreased 16% as compared to 2007, including a 1 percentage point unfavorable change in
currency exchange rates, primarily driven by sales declines in Dora the Explorer®and Sesame Street®products
as compared to strong levels in the prior year, partially offset by growth in sales of Disney®products. Worldwide
gross sales of Core Fisher-Price®increased 1% as compared to 2007, including a 1 percentage point benefit from
changes in currency exchange rates.
Gross sales of American Girl Brands increased 7% to $463.1 million in 2008 as compared to 2007,
primarily driven by strong sales of products tied to the Kit Kittredge®movie and increased sales in the retail
channel.
Cost of Sales
Cost of sales increased by $40.8 million, or 1%, from $3.19 billion in 2007 to $3.23 billion in 2008 as
compared to a 1% decrease in net sales. On an overall basis, cost of sales increased primarily due to higher input
costs and higher costs of distribution, partially offset by foreign currency exchanges benefits and lower product
recall costs as compared to 2007. Within cost of sales, product costs increased by $27.8 million, or 1%, from
$2.57 billion in 2007 to $2.60 billion in 2008. Royalty expense decreased by $2.1 million, or 1%, from $243.3
million in 2007 to $241.2 million in 2008. Freight and logistics expenses increased by $15.1 million, or 4%, from
$379.0 million in 2007 to $394.1 million in 2008.
Gross Profit
Gross profit, as a percentage of net sales, decreased to 45.4% in 2008 from 46.5% in 2007. The decrease in
gross profit was primarily 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.
Advertising and Promotion Expenses
Advertising and promotion expenses increased to 12.2% of net sales in 2008, from 11.9% in 2007 due
primarily to lower than expected sales volume.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $1.42 billion in 2008, or 24.1% of net sales, as compared to
$1.34 billion in 2007, or 22.4% of net sales. The increase in other selling and administrative expense in 2008 was
primarily due to incremental legal and settlement related costs of approximately $52 million, the impact of
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