Mattel 2015 Annual Report Download - page 11

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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, magazine, newspaper, and internet advertisements, and social media. Promotions include in-store displays,
sweepstakes, merchandising materials, major events focusing on products, and tie-ins with various consumer products
companies.
During 2015, 2014, and 2013, Mattel incurred expenses of $717.9 million (12.6% of net sales), $733.2 million (12.2% of
net sales), and $750.2 million (11.6% of net sales), respectively, for advertising and promotion.
Sales
Mattel’s products are sold throughout the world. Products within the North America 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. 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. Products within the International segment are
sold directly to retailers and wholesalers in most European, Latin American, and Asian countries, and in Australia 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 that serve as outlets for its products. American Girl products are sold directly to
consumers, and its children’s publications are also sold to certain retailers. Mattel has 20 American Girl retail stores:
American Girl Place in Chicago, Illinois, Los Angeles, California, and New York, New York, and American Girl stores in
Alpharetta, Georgia, Bloomington, Minnesota, Charlotte, North Carolina, Chesterfield, Missouri, Columbus, Ohio, Dallas,
Texas, Houston, Texas, Lone Tree, Colorado, Lynnwood, Washington, McLean, Virginia, Miami, Florida, Nashville, Tennessee,
Natick, Massachusetts, Orlando, Florida, Overland Park, Kansas, Palo Alto, California, and Scottsdale, Arizona, each of which
features children’s products from the American Girl segment. American Girl also has a retail outlet in Oshkosh, Wisconsin that
serves as an outlet for its products. Additionally, Mattel sells certain of its products online through websites of one or more of
its subsidiaries.
During 2015, Mattel’s three largest customers (Wal-Mart at $1.0 billion, Toys “R” Us at $0.6 billion, and Target at $0.5
billion) accounted for approximately 37% of worldwide consolidated net sales. Within countries in the International segment,
there is also a concentration of sales to certain large customers that do not operate in the US, none of which exceed 10% of net
sales. The customers and the degree of concentration vary depending upon the region or nation. See Item 1A “Risk Factors”
and Part II, Item 8 “Financial Statements and Supplementary Data—Note 12 to the Consolidated Financial Statements—
Segment Information.”
Licenses and Distribution Agreements
Mattel has license agreements with third parties that permit Mattel to utilize the trademark, characters, or inventions of
the licensor in products that Mattel sells. A number of these licenses relate to product lines that are significant to Mattel’s
business and operations.
Mattel has entered into agreements to license entertainment properties from, among others, Disney Enterprises, Inc.
(including Disney characters such as Star Wars, Mickey Mouse, Jake and the Never Land Pirates, Disney Planes, CARS and
Toy Story from Pixar, and certain Disney films and television properties), Viacom International, Inc. relating to its
Nickelodeon® properties (including Dora the Explorer, Blaze and the Monster Machines, and SpongeBob SquarePants™),
Warner Bros. Consumer Products (including Batman, Superman®, and Justice League®), Microsoft (including Halo), Mojang
(including Minecraft), and WWE Wrestling.
Royalty expense for 2015, 2014, and 2013 was $264.6 million, $242.4 million, and $246.9 million, respectively. See
“Commitments” and Part II, Item 8 “Financial Statements and Supplementary Data—Note 11 to the Consolidated Financial
Statements—Commitments and Contingencies."
Mattel’s license agreement with Disney Enterprises, Inc. for the global rights to produce and sell toys based on Disney
Princess® characters expired at the end of 2015 and was not renewed. Gross sales of Disney Princess products were $455.6
million in 2015. However, as evidence of Mattel's continuing relationship with Disney, Mattel recently announced important
renewals, including CARS 3 and Toy Story 4, with theatrical releases in 2017 and 2018, respectively.