Mattel 2009 Annual Report Download - page 43

foreign exchange rates, and higher bad debt expense. Compensation expense related to stock options and
restricted stock units (“RSUs”) totaled $35.7 million in 2008, as compared to $22.2 million in 2007.
Non-Operating Items
Interest expense was $81.9 million in 2008, as compared to $71.0 million in 2007, due to higher average
borrowings, partially offset by lower average interest rates. Interest income decreased from $33.3 million in 2007
to $25.0 million in 2008 due to lower average interest rates, partially offset by higher average invested cash
balances. Other non-operating income was $3.1 million in 2008 and primarily related to foreign currency
exchange gains caused by local currency revaluation of US dollar cash balances held by a Latin American
subsidiary, partially offset by a $4.0 million investment impairment charge recorded during the third quarter of
2008. Other non-operating income was $11.0 million in 2007 and primarily related to foreign currency exchange
gains caused by local currency revaluations of the US dollar cash balances held by a Latin American subsidiary.
Provision for Income Taxes
Mattel’s effective tax rate on income before income taxes in 2008 was 22.2% as compared to 14.7% in
2007. The 2007 income tax provision includes net benefits of $42.0 million related to reassessments of prior
years’ tax exposures based on the status of audits in various jurisdictions around the world, including settlements,
partially offset by enacted tax law changes.
Operating Segment Results
Mattel’s operating segments are separately managed business units and are divided on a geographic basis
between domestic and international. The Domestic segment is further divided into Mattel Girls & Boys Brands
US, Fisher-Price Brands US and American Girl Brands. Operating segment results should be read in conjunction
with Item 8 “Financial Statements and Supplementary Data—Note 15 to the Consolidated Financial
Statements—Segment Information.”
Domestic Segment
Mattel Girls & Boys Brands US gross sales decreased 1% in 2008 as compared to 2007. Within this
segment, gross sales of Barbie®decreased 7%, primarily driven by sales declines of Barbie Girls®MP3 Player
and Barbie®Collector products, partially offset by increased sales of Barbie®Fantasy products. Gross sales of
Other Girls Brands increased 13%, primarily driven by higher sales of High School Musical®, partially offset by
sales declines for Polly Pocket®and Pixel Chix®. Gross sales of Wheels products increased 11%, primarily due
to Speed Racer®sales. Gross sales in Entertainment products, which include games and puzzles and Radica®,
decreased 10%, primarily driven by sale declines in CARS™, Radica®, and interactive games products, partially
offset by increased sales of products tied to the Batman®:The Dark Knight®movie property. Mattel Girls &
Boys Brands US segment income decreased 25% to $158.2 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 and lower product recall costs as compared to 2007.
Fisher-Price Brands US gross sales decreased 6%, reflecting sales declines of Fisher-Price®Friends,
primarily driven by lower sales of Dora the Explorer®and Sesame Street®as compared to strong levels in the
prior year, partially offset by growth in sales of Disney®products, and Core Fisher-Price®products. Fisher-Price
Brands US segment income decreased 29% to $161.0 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 and
lower product recall costs as compared to 2007, and higher advertising and promotion expenses due primarily to
lower than expected sales volumes.
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