Mattel Inc. Earnings Conference Call First Quarter 2011 · : Certain statements made by Mattel’s...

Mattel Inc. Earnings Conference Call

First Quarter 2011 (Unaudited Results)

April 15, 2011Robert Eckert – Chief Executive Officer

Bryan Stockton – Chief Operating OfficerKevin Farr – Chief Financial Officer

©2011 Mattel, Inc. All Rights Reserved

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FORWARD-LOOKING STATEMENT: Certain statements made by Mattel’s executives during today’s presentations may include forward-looking statements relating to the future performance of our overall business, brands and product lines. These statements are based on currently available operating, financial, economic and competitive information and they are subject to a number of significant risks and uncertainties which could cause our actual results to differ materially from those projected in the forward-looking statements. We describe some of these uncertainties in the risk factors section of our 2010 annual report on Form 10-K, as well as in our 2011 quarterly reports on Form 10-Q and in other filings we make with the SEC from time to time. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.

REGULATION G: Information required by Securities and Exchange Commission Regulation G, regarding non-GAAP financial measures, as well as other financial and statistical information, will be available at the time of the conference call on the “Investors & Media” section of http://corporate.mattel.com/, under the subheading “Financial Information” – “Earnings Releases.”

http://corporate.mattel.com/


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Key Takeaways First Quarter 2011

Delivered solid financial results Worldwide revenues up (+8%)Domestic (+7%) and International (+10%) revenues upImproved Gross Margins (+60bpt)Began Operational Excellence 2.0 program ($150mm targeted savings)SG&A cost increase primarily due to legal and settlement related expenses

Performed well in the marketplaceStrong performance across diverse brand portfolio Every major region grew – US, Canada, Europe, Asia and Latin America

Generated and deployed significant cash flowPaid first quarter dividend of $0.23 per share on March 11, 2011

($0.92 annualized dividend +11%)Repurchased 4.0mm shares at total cost of $100mm


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Global Strategic Priorities 2011 and Beyond

Deliver consistent growthContinue momentum in core brandsOptimize Entertainment partnershipsBuild new franchisesContinue expansion of International footprint

Build on operating margin progressSustain Gross Margin of ~50%Deliver cost savings targets

Generate significant cash flowContinue disciplined, opportunistic, value enhancing deployment


2006 2007 2008 2009 20102011201020112010

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Worldwide Gross Sales First Quarter 2011 ($ In Millions - Unaudited)

• Core brand momentum continues with growth in Barbie, Hot Wheels and American Girl.• Evergreen entertainment properties continue to improve, including CARS, Disney

Princess, Thomas & Friends, and Toy Story 3.• The Monster High franchise continues to expand globally.• Gained share in growing US category.*

• Retail inventory levels up consistent with POS momentum and timing of Easter.

Quarter Year-to-Date Historical TrendFull Year+8.0% +8.0%

6,158.0 6,486.06,592.91,041.1960.3 1,041.1960.3 5,934.3 6,386.6

CurrencyImpact (ppt)

+3 ppt 0 ppt 0 ppt0 ppt+3 ppt (2) ppt+3 ppt+1 ppt (2) ppt

* Source: NPD Group / Consumer Tracking Service (Jan – Feb)


656573

310316

7370

20112010

3,424 3,700 3,643 3,286 3,661

2,2692,442 2,357

2,1682,221

440431 463

463487

2006 2007 2008 2009 2010

Oth

AG

FP

MB656573

310316

7370

20112010

6

+4.0%

(2.0%)

+15.0%

+4.0%

(2.0%)

+15.0%


Mattel Brands:

Fisher Price:

American Girl:

Worldwide Gross Sales by Business First Quarter 2011 ($ In Millions - Unaudited)

CurrencyImpact(ppt)

+3 ppt 0 ppt +3 ppt+1 ppt 0 ppt0 ppt+3 ppt

Y/Y %Y/Y %

• Growth in Girl of the Year “Kanani” and My American Girl as well as positive momentum in retail operations.

• Growth driven primarily by Barbie, Monster High, Entertainment, Disney Princess, and Hot Wheels.

• Growth in Power Wheels and flat sales in Core offset by decreases in Baby Gear and the loss of the Sesame Street license.

1,041.1960.3

1,041.1960.3

(2) ppt (2) ppt

6,158.0 6,486.06,592.95,934.3

6,386.6


303258

172183

7370

20112010

1,495 1,433 1,425 1,390 1,616

1,467 1,507 1,414 1,3071,349

440 431 463 463487

2006 2007 2008 2009 2010

AG

FP

MB303258

172183

7370

20112010

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3,419.1 3,319.23,387.6512.8549.4

512.8549.4

+4.0%

(5.8%)

+17.3%

+4.0%

(5.8%)

+17.3%

Mattel Brands:

Fisher Price:

American Girl:

Domestic Gross Sales by Business First Quarter 2011 ($ In Millions - Unaudited)

+7.1% +7.1%Quarter Year-to-Date Historical Trend

Full YearY/Y % Y/Y %

• Growth driven primarily by Entertainment, Monster High, Disney Princess, and Hot Wheels. Barbie sales were flat.

• Declines in Core, Baby Gear and the loss of the Sesame Street license partially offset by growth in Power Wheels.

3,176.03,465.8

• Growth in Girl of the Year “Kanani” and My American Girl as well as positive momentum in retail operations.


279274

11388

6756

3330

20112010

1,543 1,798 1,690 1,443 1,508

740912 979

861 868

240

275 286271 333216

220 212184 212

2006 2007 2008 2009 2010

CAN/Oth

APAC

LATAM

Europe279274

11388

6756

3330

20112010

8

2,739.03,166.8

2,920.83,205.3

491.7447.5

491.7447.5


Europe:

Latin America:

Asia Pacific:

+10.1%

+28.2%

+2.0%

+18.8%

+10.1%

+28.2%

+2.0%

+18.8%

+2 ppt+7 ppt +7ppt (4)ppt+2ppt +1ppt (4)ppt+2 ppt+7 ppt

International Gross Sales by Region First Quarter 2011 ($ In Millions - Unaudited)

CurrencyImpact (ppt)

Y/Y % Y/Y %

• Growth in UK, Italy, Germany & Central Europe partially offset by declines elsewhere.

• Growth throughout the region with strong double digit growth in Brazil and Mexico.

• Growth across most markets with the strongest being China, Australia, and India.

2,758.3


Prior Year: 49.1 %

Change primarily driven by:Input Costs

Pricing

Operational Excellence 2.0

Royalty

Mix, FX & Other

Current Year: 49.7 %Change: 60 bpt

Quarter

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Gross Margin First Quarter 2011

(As a Percent of Net Sales - Unaudited)

=Improvement in GM% =Detriment to GM%

=Neutral to GM%

Improved gross marginsPrimarily driven by pricing offsetting higher input costs.


In Millions

Prior Year: 292.5$ 33.2 %

Change primarily driven by:Operational Excellence 2.0

Employee Related Costs

Severance

Legal/Settlement Related

Incentive/Equity Comp

Other

Current Year: 334.5$ 35.1 %

Change: 42.0$ 190 bpt

Quarter% of Sales

10=Improvement in SG&A =Detriment to SG&A

=Neutral to SG&A

SG&A First Quarter 2011

($ In Millions and as a Percent of Net Sales - Unaudited)

Operational Excellence 2.0 targeting incremental $150mm cumulative savings by end of 2012

Increase in legal/settlements was $26 million or 60% of the SG&A increase


% of Phase 22009 2010 Total Gross Q1A FY Target Legal Structural Total Total

SG&A 88 20 108 48% 3 15 75

Gross Margin 62 27 89 40% 1 15

Advertising 14 14 28 12% 1 5

Gross Savings 164 61 225 100% 5 35 75 40 115 150

Investments 32 13 13 3 15

Net Savings 132 48 212 2 20

Global Cost Leadership Operational Excellence 2.02012 FY Targets2011

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Operational Excellence 2.0 First Quarter 2011 ($ In Millions –

Unaudited)

• Global Cost Leadership program savings exceeded expectations with $225 million in sustainable savings.

• Operational Excellence 2.0 includes new 2-year cumulative savings targets – total $150 million.• At least 60%+ of $150 million cost savings expected to positively impact SG&A

• Operational Excellence 2.0 initiatives include:• Reduction in legal expenses• Global Brand Teams/North America Division re-organization• Continuation of global procurement initiatives• SKU efficiency• Packaging optimization

Run Rate


In Millions

Prior Year: 45.2$ 5.1 %

Change primarily driven by:

Sales Volume

Gross Margin

Advertising & Promotion

SG&A

Currency

Current Year: 36.8$ 3.9 %

Change: (8.4)$ (120) bpt

Quarter% of Sales

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Operating Income First Quarter 2011 ($ In Millions –

Unaudited)

=Improvement in Op Inc =Detriment to Op Inc

=Neutral to Op Inc

Higher sales and gross margins offset by higher SG&A spend driven by legal/settlement activity


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EPS First Quarter 2011 ($ Per Share ‐

Unaudited)

=Improvement in EPS =Detriment to EPS

=Neutral to EPS

Higher sales and gross margins offset by higher SG&A spend driven by legal/settlement activity

Quarter

Prior Year: 0.07$

Change primarily driven by:

Operating Profit

Interest / Non-operating

Tax Rate

Currency

Share Count

Current Year: 0.05$ Change: (0.02)$

(29%)

Lower operating profit and higher interest expense partially offset by improved tax rate


Capital Deployment Share Repurchases• 4.0mm shares/Avg. price $25.24• Remaining authorization $364mm

Dividend• First Quarter dividend $0.23• Annualized dividend to $0.92 (+11%)

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Cash Flow*

First Quarter 2011 ($ In Millions - Unaudited)

* Amounts shown are preliminary estimates. Actual amounts will be reported in Mattel’s Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2011.

Improved Cash Flow from Ops

Primarily due to decision not to factor domestic receivables last year ($300mm) partially offset by increased working capital

2009 2010 2011

Net Income (51) 25 17 Depreciation 38 37 36 Amortization 6 4 4 Change in Working Capital & Other (208) (311) (99)

Net Cash Used for Operations (215) (245) (42)

Capital spending (20) (24) (45) Other investing 43 (11) 36

Net Cash From/(Used for) Investing 23 (35) (9)

Share Repurchases - - (100) Dividends - - (80)

Financing Activities and Other (21) 35 (1)

Net Cash (Used for)/From Financing Activities & Other (21) 35 (181)

Change in cash (213) (245) (232)

Cash at the beginning of the period 618 1,117 1,281

Cash at the end of the period 405 872 1,049


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Well Positioned for 2011 & Beyond

Near Term Strategic Priorities

Deliver consistent growthContinue momentum in core brandsOptimize Entertainment partnershipsBuild new franchisesContinue expansion of International footprint

Build on operating margin progress Sustain Gross MarginDeliver cost savings targets

Generate significant cash flow Continue disciplined, opportunistic, value enhancing deployment


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Appendix


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Incremental MGA and Recall- Related Legal/Settlement Costs

Historical Trend of Yr/Yr Variance ($ In Millions ‐

Unaudited)

1st trial beganMay 2008

2nd trial beganJanuary 2011

Incremental MGA and Recall-Related Legal and Settlement Costs

2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011

Q1 18.3 (11.3) 5.7 10.7 - 20.9 (28.4) 7.5 18.3 9.6 (22.7) 18.2Q2 25.1 (21.2) 8.3 - (4.9) 3.7 25.1 (26.1) 12.0Q3 0.5 (4.2) 11.0 - 5.4 (10.2) 0.5 1.2 0.8 Q4 (7.2) 3.4 15.0 15.4 (15.4) - 8.2 (12.0) 15.0

Full Year 36.8 (33.3) 39.9 15.4 6.0 (34.9) 52.2 (27.3) 5.0

Recall Related Settlement Total Legal/SettlementMGA/Recall Legal


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