Mattel 2011 Annual Report Download - page 45

offset by savings related to the Global Cost Leadership program of approximately $20 million, lower bad debt
expense, and lower severance charges. The increase in employee-related costs includes approximately $17
million in incremental share-based compensation expense, approximately $10 million in incremental annual
incentive expense, and approximately $16 million related to annual merit increases that began during the second
quarter of 2010.
Non-Operating Items
Interest expense was $64.8 million in 2010, as compared to $71.8 million in 2009, driven primarily by lower
average borrowings, lower average interest rates, and the absence of domestic receivables factoring in 2010,
partially offset by interest expense associated with the $500 million of senior notes issued in 2010. Interest
income increased from $8.1 million in 2009 to $8.4 million in 2010, driven primarily by higher average invested
cash balances, partially offset by lower average interest rates. Other non-operating income was $1.3 million in
2010, as compared to other non-operating expense of $7.4 million in 2009, driven primarily by other investment
gains and lower foreign currency exchange losses.
Provision for Income Taxes
Mattel’s effective tax rate on income before income taxes in 2010 was 19.1%, as compared to 19.9% in
2009. The 2010 income tax provision includes net tax benefits of $16.8 million, primarily related to the release of
a valuation allowance related to the anticipated utilization of excess foreign tax credit carryforwards,
reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions
around the world, settlements, and enacted tax law changes, partially offset by the incremental tax cost to
repatriate earnings from certain foreign subsidiaries for which income taxes had not been previously provided.
The 2009 income tax provision includes net tax benefits of $28.8 million related to reassessments of prior years’
tax liabilities based on the status of audits in various jurisdictions around the world, settlements, and enacted law
changes.
Domestic Segment
Mattel Girls & Boys Brands US gross sales were $1.63 billion in 2010, up $224.2 million or 16%, as
compared to $1.40 billion in 2009. Within this segment, gross sales of Barbie®increased 14% and gross sales of
Other Girls Brands increased 26%, driven primarily by increased sales of Disney Princess®products and the
launch of Monster High®. Gross sales of Wheels products decreased 4%, driven primarily by decreased sales of
Tyco R/C®, other Wheels products that did not continue into 2010, and Hot Wheels®products. Gross sales of
Hot Wheels®products decreased 1%. Gross sales of Entertainment products increased 33%, driven primarily by
increased sales of Toy Story®3, WWE®Wrestling, and Radica®products. Cost of sales increased by 12% in
2010, as compared to a 16% increase in net sales, primarily due to higher royalty expenses as a result of
increased sales of products tied to licensed properties. Gross margins increased primarily due to price increases,
partially offset by higher royalty expenses.
Mattel Girls & Boys Brands US segment income increased 40% to $409.4 million in 2010 from $293.4
million in 2009, driven primarily by higher net sales and higher gross margins, partially offset by higher
advertising and promotion expenses.
Fisher-Price Brands US gross sales were $1.35 billion in 2010, up $42.0 million or 3%, as compared to
$1.31 billion in 2009. Within this segment, gross sales of Core Fisher-Price®products decreased 2% and gross
sales of Fisher-Price®Friends products increased 29%, driven primarily by sales of products supporting the
Thomas and Friends®property and the launch of Sing-a-ma-jigs®, partially offset by decreased sales of Sesame
Street®and certain smaller licensed properties products. Cost of sales increased by 8% in 2010, as compared to a
3% increase in net sales, primarily due to higher product costs and higher royalty expenses as a result of
increased sales of products tied to licensed properties. Gross margins decreased primarily due to higher product
costs and higher royalty expenses, partially offset by price increases.
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