Mattel Inc (MAT) 2005 Q3 法說會逐字稿

Could day and welcome, everyone, to the Mattel, Incorporated third-quarter 2005 earnings results conference call.

Today's call is being recorded.

With us today from the Company is the Treasurer and Senior Vice President of External Affairs, Mr. Mike Salop.

Please go ahead, sir.

Thank you and good morning, everyone.

Also on the call today is Bob Eckert, our Chairman and Chief Executive Officer, and Kevin Farr, our Chief Financial Officer.

As you know, earlier this morning, we issued a press release which detailed our results for the third quarter.

On the call today, Bob will provide brief remarks on the quarter and Kevin will then review the financial results in more detail.

We will then open the call up to your questions.

Before we begin the formal remarks, let me note certain statements made today may include forward-looking statements about management's expectations, strategic objectives, anticipated financial performance and other similar matters.

Such forward-looking statements will include statements regarding performance of Barbie and our other core brands and product lines, profits and margins, the impact of recent organization changes, improvement of processes across the organization, costs and expenses, management of costs and expenses, including continuous improvement initiatives such as e-procurement, centralization of global spending and lean manufacturing programs, capital deployment and creation of value for shareholders.

There may be additional forward-looking statements in response to questions or otherwise.

We intend for these additional forward-looking statements to be covered by this cautionary statement.

A variety of factors, many of which are beyond our control, affect the operations, performance, business strategy and results of Mattel and could actual results to differ materially from those projected in such forward-looking statements.

Some of these factors are described in our 2004 report on Form 10-K filed with the SEC and Mattel's other filings made with the SEC from time to time as well as in matters -- Mattel's other public statements.

Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.

Information required by Regulation G regarding non-GAAP financial measures is available on the Investors and Media section of our corporate Web site, Mattel.com, under the subheading "Financial Information and Earnings Releases".

Now, I'd like to turn the call over to Bob.

Thank you, Mike, and good morning.

Before Kevin provides an overview of the financial details, I'd like to give you my thoughts on the quarter and our recent organizational announcement.

As I said last quarter, 2005 looks to be a challenging year for Mattel, and the third quarter was consistent with that outlook.

That said, our third-quarter results are disappointing; the sales increases across much of our portfolio, Hot Wheels, Fisher-Price, and American Girl, as well as key contributions from entertainment properties such as Batman, Dora-the-Explorer and the Disney Princesses line, were offset by declines in the Barbie brand.

Following the improved trend in Barbie at the end of last year, we haven't sustained or built upon the positive momentum into 2005.

I believe part of the solution is providing additional resources behind our "Worlds of" strategy, then increasing the bandwidth in the Barbie organization so we can produce more successes like Fairytopia, Fashion Fever and our fall entertainment series, with this year's hit being Barbie and the Magic of Pegasus.

But that's just part of it.

Beyond more and stronger worlds, we also need to do a better job of tying the worlds together, reintroducing products that satisfy play patterns that aren't covered in the worlds, and communicating to girls the essence of the Barbie brand.

Fisher-Price does a great job of communicating the essence of its brand across a wide range of products.

The Brand has successful lines from baby monitors to bouncer seats to infant stores to sophisticated reading systems, and they are all successfully marketed under the "play, Laugh, Grow" umbrella.

It's also important to note that Mattel's success doesn't rely on Barbie alone.

Even in the doll category, our business is much broader than one Brand.

In fact, three of the fastest-growing doll brands in the industry are made by Mattel, Dora-the-Explorer, Disney Princesses and American Girl.

Our Wheels category is performing well with strong performance of Hot Wheels and Matchbox on a worldwide basis, and several of our entertainment properties are also doing well, including Batman.

Fisher-Price, American Girl and our international business continue to grow.

With these successes, there is, however, room for improvement.

As most of you know, last week, we implemented a new organizational structure by combining our Mattel and Fisher-Price brands under the leadership of Neil Friedman, the former head of Fisher-Price.

I've been talking to employees about the new structure and I will tell you what I've told them; the new structure is centralized, where it's more efficient to leverage our scale, much like we do in our operations in international groups.

It preserves the natural marketing and design groups that are empowered to create and market toys based on gender and ages segments.

For those of you who don't know Neil, he has over 30 thirty years experience in industry and has a long history of developing and marketing innovative toys.

Under his leadership, Fisher-Price has successfully grown its baby gear and infant product lines and executed its learning initiatives, contributing to Fisher-Price's strong growth worldwide.

Literally, a toy industry Hall of Famer, Neil has personally developed some of the most innovative toys in the industry and most recently led a large organization where he fostered an environment of creativity and innovation.

Someone asked me the other day if this was Plan B. No, it's Chapter Two.

Chapter One was the turnaround initiated in 2000.

After achieving progress from 2000 through 2003, the results for the last couple of years admittedly haven't been as strong as we would have liked.

Chapter Two has just begun, and it's absolutely consistent with what I said my first day at Mattel -- we need to build brands, cut costs, and develop people.

We're going to do just that in a streamlined organization that's focused on scale, innovation, and execution.

We have incredible resources, the best-selling brands in the industry, financial strength and most importantly, an energized leadership team.

Thank you.

Now, I'd like to turn the call over to Kevin for a financial review of the quarter.

Thank you, Bob, and good morning, everyone.

My remarks regarding the third-quarter financial performance will be organized in the following manner -- revenues by geography, business unit and brands, key drivers of the P&L, cash flow and balance sheet at September 30, 2005.

To facilitate my review of the financial performance for the third quarter, I recommend that you refer to the exhibits of the press release.

I will begin with a discussion of worldwide gross sales, shown on Exhibit 2.

Total worldwide gross sales for the third quarter were flat with the prior year, including a benefit from changes in currency exchange rates of 1 percentage point.

Gross sales in the U.S. decreased in 4%, while international gross sales increased 5%, including a benefit of 3 percentage points from changes in currency exchange rates.

On a regional basis, sales for the third quarter in Europe were down 3% with no impact from changes in currency exchange rates.

Sales in Latin America were up 29%, including a 10 percentage point benefit from changes in currency exchange rates.

Asia-Pacific was up 1%, including a 4 percentage point benefit from changes in currency exchange rates.

I will now review our core categories and brands.

Mattel brands -- for the quarter, worldwide sales for Mattel brands were down 5%, including a 2 percentage point benefit from changes in currency exchange rates.

Domestic sales were down 13% and international sales were up 2%, including a 3 percentage point benefit from changes in currency exchange rates.

Worldwide Barbie sales were down 18%, including a 1 percentage point benefit from changes in currency exchange rates.

Barbie sales in the U.S. declined 30% when compared to the third quarter of 2004.

In international markets, Barbie sales were down 8%, including a 2 percentage point benefit from changes in currency exchange rates.

As Bob mentioned, the Barbie sales trends are not consistent with our expectations for such a premier brand.

Turning the Barbie brand around remains one of our top priorities within Mattel.

We have already begun investing more resources and more intellectual capital in the brand, and we will not be satisfied until the Barbie brand performance improves.

Worldwide sales of other Girls brands were up double digits.

The growth in other Girls brands was driven primarily by Disney Princesses and large (indiscernible) including Little Mommy and Teen Trends.

Worldwide sales for the Wheels business was up 4%, including a 2 percentage point benefit from changes in currency exchange rates, driven by strong sales of Hot Wheels and Matchbox internationally.

Worldwide sales entertainment business were down 7% versus the prior year, including a 2 percentage point benefit from changes in currency exchange rates.

While worldwide sales of Batman product continued to be strong during the third quarter, the Entertainment category was negatively impacted by sales declines in Yu-Gi-Oh! worldwide and JuiceBox in the U.S.

Fisher-Price brands -- for the quarter, worldwide sales for Fisher-Price brands were up 6% with no impact from changes in currency exchange rates.

Domestic sales of Fisher-Price brands were up 4%, and international sales were up 12%, including a 2 percentage point benefit from changes in currency exchange rates.

Worldwide sales at Core Fisher-Price were flat with no impact from changes in currency exchange rates, reflecting strong growth internationally driven by continued success with the infant and baby gear lines, offset by declines in the U.S. as shipments lagged strong performance at retail.

Worldwide sales of Fisher-Price Friends is up 21%, including a benefit of 1 percentage point from changes in currency exchange rates.

The double-digit growth was primarily driven by the continued strength of Nickelodeon's Dora-the-Explorer worldwide.

American Girl brands -- sales of American Girl brands was up 12%, reflecting continued strength in American Girl today, driven by the continued success of the Marisol doll launched in January and the continued strong performance of our American Girl retail stores.

Now, let's review the P&L, which is shown on Exhibit 1.

Gross margin was 45.7% for the third quarter of 2005, which decreased 210 basis points versus the third quarter of last year.

Compared with the prior-year third quarter, gross margin benefited from changes in currency exchange rates and price increases, which became effective January 1, 2005.

However, these benefits were more the offset by external cost pressures, including higher raw material and transportation costs, sales of lower-margin product, and higher royalty costs.

As previously communicated, we are investing in continuous improvement initiatives aimed at driving costs out of our sourcing and distribution networks to counter these cost pressures.

These initiatives include e-procurement and the centralization of our global spending, as well as lean manufacturing programs.

For the quarter, advertising expense was 191.6 million, or 11.5% of net sales, flat versus the prior year as a percentage of net sales.

Selling, general and administrative expenses were 260.9 million or 15.7% of net sales for the quarter, up 17.2 million or 100 basis points compared with last year's third quarter.

SG&A in 2005 was negatively impacted by higher employee related costs as well as continued investments in design and development, and emerging international markets.

For the quarter, operating income was 308.8 million, down 14% versus the prior year.

As a percentage of net sales, operating income was 18.5%, down 310 basis points compared with the prior year.

Interest expense was 16.8 million for the quarter, compared with 20.8 million in the third quarter of 2004.

Compared to last year, this year's interest expense reflects the impact of lower short-term and long-term debt outstanding, partially offset by higher short-term borrowing rates.

Earlier this year, the Company began repatriating cash under the American Jobs Creation Act, which resulted in lower short-term borrowings for the third quarter of 2005.

Other nonoperating income, net, was 15 million versus 5.8 million a year ago.

This quarter's other nonoperating income, net, includes a gain of 11.5 million from the sale of marketable securities.

Last year's other nonoperating income, net, included an 8.8 million gain from the sale of marketable securities.

As of September 30, 2005, the Company did not have any unrealized gains or losses on the balance sheet associated with marketable securities.

So, to summarize the P&L the quarter, we reported net income of 225.3 million, or $0.55 per share, versus last year's third-quarter net income of 255.8 million or $0.61 per share.

Despite growth in our core brands outside of Barbie, overall flat sales, accompanied by increasing cost pressures, are negatively impacting our financial results.

Now, turning to cash flow and balance sheet shown on Exhibit 3, cash used for operations in the first nine months of 2005 was approximately 629 million, an increase of 80 million versus the first nine months of 2004.

Cash used for investing activities was approximately 38 million, including capital expenditures of 93 million.

Cash used for financing activities and other was approximately 316 million, including 250 million used to repurchase shares of the Company's stock.

During the third quarter, the Company repurchased 700,000 shares at an average cost of $18.54 per share, utilizing the remaining amount authorized under the share repurchase program.

Cash on hand at the end of the third quarter was 174 million, which was 157 million less than cash on hand a year ago.

This is primarily because, in the third quarter of 2005, the Company repaid 150 million of senior Notes which mature in July.

Our receivables were 1.3 billion, up 42 million, with 68 Days of Sales Outstanding, which is 2 days higher than last year.

Before factoring, which was 336 million, down 31 million versus the prior year, receivables were up 11 million with Days Sales Outstanding flat with the prior year.

Inventories, at 726 million, were up 59 million or 9% versus last year's third quarter and represented 67 days of supply, which is 3 days higher compared to last year.

Our total balance sheet debt decreased by 191 million, and our debt petty (ph) cash decreased by 34 million from the third quarter of 2004.

Our debt-to-total capital ratio was approximately 19% at the end of the quarter, compared with 24% at the same time last year.

The lower debt-to-total capital ratio is the result of the repayment of 150 million in senior Notes during the third quarter, which has not yet been refinanced, but we plan to replace it in the fourth quarter.

Overall, we are not pleased with our performance for the quarter.

The Barbie brand performance has been disappointing and has eclipsed the growth we've seen across several of our other brands.

The environment continues to be challenging, and we expect the cost pressures to continue but will remain focused on growing our top line while improving our overall profitability.

That concludes my review of the financial results.

Now, we'd like to open the call to questions.

Operator?

Thank you. (OPERATOR INSTRUCTIONS).

Sean McGowan with Harris Nesbitt.

Just a question on share repurchase -- any thoughts there, now that that's used up and there's still a lot of cash on the balance sheet?

Maybe Kevin, if you can talk about the gross margin outlook, particularly with regard to whether or not you think any pricing increases could be put into effect for 2006.

Thank you.

Sean, it's Bob.

Since 2003, we've acquired 41 million shares at a cost of about $750 million, and we also increased the dividend last year to $0.45 a share, which was up 12.5%.

So the Board has demonstrated its commitment to returning excess funds to shareholders.

That said, I always remind folks that we're not going to get ahead of ourselves, and I always caution investors not to read too much into our short-term actions.

So, what we've done is consistent with the capital deployment framework that we announced in 2002 or 3, Kevin?

2003, Bob.

2003.

We've been marching along that path, and I would expect that we will continue marching along that path, but we're not going to get ahead of ourselves and I'm certainly not going to get ahead of the Board.

To your second question, I will let Kevin talk about margins, but the fact is, as we've seen all year, our prices have not kept pace with our cost increases, so we will certainly be working with customers in the months ahead.

But we are planning on taking price increases in 2006 to recover some of the costs we've experienced.

Yes, I think, if you look at gross margin for the third quarter, Sean, you know, we've said, coming into this year, we expect gross margins to be under pressure as we (indiscernible) cost pressures for raw materials and transportation and as we continue to invest in our brands to regain sales momentum.

There's a lot of moving parts in margin, but we don't want to get too detailed, but more of the decline is related to cost pressures than product mix.

As we've said before, our price increase initiated in 2005, and the benefit of foreign exchange were not enough to offset these external cost pressures, including those higher raw material and transportation costs.

Additionally, margins were negatively impacted by sales of lower-margin products and higher royalty costs.

Looking forward, to the extent possible ,we will continue to work on savings and procurement initiatives to offset at least some of the pressures on gross margins, but there's no assurances we will be successful in offsetting these costs.

As Bob said, as we were looking at oil prices in the 60s, we will be looking at a price increase going into 2006.

Margaret Whitfield with Ryan Beck Brokers.

Bob, I was interested in your comments that you need to reinforce other play patterns for Barbie.

What do you think is missing?

I wondered if you could comment on Magic of Pegasus and My Scene Goes Hollywood -- how those two worlds of lines are performing currently.

Margaret, let me start broadly with my view of the reasons for Barbie's decline.

First, it's as simple as POS; that is the product just isn't selling well enough at retail.

It's still the number one toy in the world; we are bigger than Star Wars in a Star Wars movie year, but at best we are hit-or-miss on the "Worlds of".

That's why I think we need to work on bandwidth.

The Magic of Pegasus is fine, but retailers have made a big bet on Disney Princesses, and I would say that's sort of the second reason for our decline.

We are not enjoying, at Magic of Pegasus, the retail support that Cinderella is.

Now, we like Disney Princesses; we make those dolls and they're selling very well.

In fact, I think Twinkle Lights Cinderella, which is a great doll with a great feature, was one of our best-selling toys in the last couple of weeks at retail.

But the fact is, even though we make those dolls and we like those sales, they are not in the Barbie line.

The third issue on Barbie is shelf space.

To me, this is a bit of a chicken-and-egg phenomenon between shelf space and POS.

But the fact is our shelf space is down in mirror image to the POS.

The fourth reason is that there is trade de-loading.

Certain customers are clearly reducing their inventories on Barbie.

To the second specific question, My Scene Hollywood is okay; it's not performing as well as we would've liked.

The video is doing okay, but I'll tell you, the Pegasus video is doing quite well.

It's in the top five or six videos of everything for sale and certainly the number one kids video over the past couple of weeks.

It outsold a competitor's video by 4X in its first week.

So we're feeling good about Pegasus, particularly given the support we have, but it's going to be a Disney Cinderella fall as it relates to that segment, and that's how we are planning on it.

And the others -- play patterns that you think need to be reinvigorated for Barbie?

With Neil's arrival just recently, when could he impact the line?

Is it an '07 event, or can he fine-tune the holiday line for next year?

Well, I don't want to get into the specific play patterns of products because I'm worried that our competitors listen to this, so I would rather have them see the product in the marketplace as opposed hearing about it from us.

I certainly anticipate that Neil and Chuck Scothon, who is coming here from Fisher-Price to head up our Girls division, will have an impact on our 2006 product line.

Finally, on Dora, which of course is out of Fisher-Price, I can't help but notice increasing square footage at retail there.

Could you comment on what has driven that product to be so powerful of late?

Margaret, it's as simple as point-of-sale.

It's a great property.

Dora is very popular, not just in the United States but all over the world, and we have fantastic toys to go with that great property.

This year, Dora's Talking Kitchen is clearly going to be one of the top-selling toys in the industry.

So, it is as simple as good brand, terrific toys.

It increases point-of-sale, and that increases shelf space.

Is Chuck Scothon working on Dora or was that some other designer within Fisher-Price?

Well, we have a lot of folks working on Dora; some of it is in Chuck's area but most of it really is in Kevin Curran (ph), who has been heading up our Friends business.

Kevin will be moving over into Core Fisher-Price.

Tony Gikas with Piper Jaffray.

Good morning, guys.

A couple of questions -- I think the expectation was that some of the pressure on the gross margin was going to be more incremental to 2006 than to 2005, since a lot of those manufacturing contracts have been in place.

Could you maybe characterize for us a little bit more what the change might be next year?

Do you have many of your manufacturing contracts in place at this point?

Second question -- how much do you think the consumer impacted the third quarter versus perhaps not proper product alignment?

Okay, I will take the first question;

Bob will take the second question.

I think, as we've said, Tony, we've seen all year pressure on our input costs, particularly commodities and transportation costs.

When we did our modest price increase coming into the year of 2 to 4%, we didn't consider oil being in the $50 to $60 range, so we've seen impact from transportation and an influx particularly in resin costs than where we've seen it.

So we see that continuing into 2006, and as we said earlier, we intend to take that into factoring into our price increase in 2006.

Tony, this is Bob.

Our shipments overall in the U.S., the customer-supplied point-of-sale data that we get and NPD are all consistent.

The toy industry is down about 5% according to NPD year-to-date.

We are performing better than that; we are gaining a bit of share but we're not growing.

Obviously, if you look past Barbie, the numbers are pretty good and our calculation of retail inventories is that they are down in the mid single digits.

The retailers I've talked to are anxious with higher gasoline and heating oil prices and declining consumer confidence.

But I also know some retailers will be aggressively pursuing the business this fall with strong promotional programs and competitive pricing.

Over the past several years, the consumer has done her part and I think we are all hopeful that she steps up again in this fourth quarter.

Okay, a quick follow-up, then -- you know, we've been out in a lot of stores recently and we've been seeing some pretty significant discounts, particularly on some of the higher-traffic items.

How is pricing holding up?

Are these trends more or less than you've seen in the previous year in terms of discounting at this point in the year?

Well, I don't want to get into specifics, Tony, but generally speaking, I haven't seen and we haven't seen, broadly across retailers, anything that is outside of our expectations for this time of year.

But we will have to see how things heat up around Thanksgiving, but retail prices are, generally speaking, in line with our expectations right now.

Linda Bolton Weiser with Oppenheimer.

Thank you.

I just had a couple of questions on the SG&A expense line.

Can you tell me if compensation expense was up or down versus the third quarter of '04?

Then secondly, I think you had mentioned something about higher design costs in emerging markets.

Maybe you could explain what that is.

Finally, Bob, I am just wondering, you know, with all cost pressures you are facing and with the difficulty in growing sales, it seems like now would be the time to be really aggressive, even more so, on the SG&A expense line.

Would you consider doing some more restructuring activities, or do you see opportunity for that in the Company?

Okay, going to your first question, Linda, SG&A was negatively impacted by higher employee-related costs.

That related both to compensation, it related to merit and then benefits.

Compensation is one of our biggest costs in the SG&A line.

We did continue to make investments in design and development and investments in our international markets.

We've opened offices in emerging markets like Eastern Europe.

Linda, this is Bob.

As it relates to your question on restructuring, as you know, we reorganized the Company last week and they are in the midst of that.

There will be efficiencies as a result of the new organization, but my primary motive was to improve effectiveness, not just efficiency.

Now, historically, when we have taken -- undertaken cost-reduction programs, they've been very good for us.

There is a very good payback on these programs, and there's a very clear line of sight on the savings.

So clearly, one of the things we're going to be looking at in light of our performance right now is the infrastructure of the Company and do we have everything aligned in the right place.

But I don't want to get ahead of ourselves on anything specific.

Joseph Yurman with Morgan Stanley.

Good morning.

A few questions here -- the first one, I guess, Kevin, this is going to be you -- related to CapEx, if I heard right.

I guess the nine-month tally is about 93 million.

I know that, kind of longer-term, you guys talk about 180 to 200, but it was a lower number than that last year.

Is this a trend?

Is this becoming a lower CapEx-intensive business, I guess, as we think about our cash flow model?

I guess the second question, two and three, would be for you, Bob.

With respect to Barbie and some of the declines at POS as well as some of the trade de-loading, are you seeing that on the licensing side of the brand as well?

Then, I guess a bigger-picture question -- if we were just to step back, and when you had restructured the brands I guess when Adrian left and Matt was tapped to head up Boys and Girls, what was hoped for with that restructuring?

I guess what was not achieved and what do you think will be the main byproduct of the most recent restructuring under Neil?

Thank you.

All right, Joe, I will start with CapEx.

As you know, we don't give specific guidance, but I will tell you that we will continue to invest in the business to create value for shareholders of the long-term.

As you've indicated, our long-term framework provides for 180 million to 200 million.

But in any given year, the expenditure levels could be above or below that, based upon the needs of the business.

To date, as you've mentioned in the call, through nine months, CapEx was 93 million and it's tracking closer to last year's levels.

You know, as I looked forward, it depends upon what we're doing in any given year.

As we look into 2006, I would expect it to be higher as we invest in the building of a new American Girl store in Los Angeles.

Joe, this is Bob.

As it relates to your second third questions, we don't disclose the specifics on revenue details of licensing but overall, the licensing revenues have held up well, particularly in light of the disappointing sales performance of Barbie.

We are excited about some of our new licensing arrangements.

We have the Barbie Live Stage Show Featuring Barbie and Fairytopia, which is a new partnership with Clear Channel, and our licensing arrangement with Benetton for dolls and girls apparel.

As it relates to Barbie strategy, we clearly had some successes over the past couple of years.

Last fall, we did well, and this spring, with Fairytopia, we did well, but as I said earlier, our "Worlds of" product approach has been hit or miss; we've missed too many segments.

Clearly, one of the things we're looking forward to as we go forward is to improve the execution of the brand.

That is get the worlds right, get the play patterns between the world and tie together the brand in a statement to consumers.

That's why I talked about Fisher-Price in my opening remarks.

Fisher-Price has done a wonderful job of taking a product line that is very broad and tying it together for consumers.

We have not done a good enough job of that with Barbie.

(OPERATOR INSTRUCTIONS).

Elizabeth Osur with Citigroup.

Just a couple of quick questions -- I just wanted to clarify, first of all, on the shelf space, Bob, I think you said that shelf space was tracking sort of in line with POS.

I wanted to clarify if that meant that Barbie shelf space was done in the area of 30% this year.

Is that what you meant to say?

No, our POS and the NPD data on Barbie -- the decline is not as pronounced as it is on a shipment standpoint, because there has been some trade de-loading.

But the shelf space and the POS and the NPD all say roughly the same thing, which is the brand declined in the mid to high teens.

Okay, thanks.

Then just a further quick one -- first of all, were there any restructuring costs taken in the SG&A this quarter, or will there be next quarter?

With respect to this quarter, there was no charges, and we don't give guidance with regard to the future.

Okay.

Finally, just given the success of the Disney Princess line and the Dora line, can you give us some context of what licensed properties might be as a percentage of sales, or just sort of contextually how it compares to prior years?

I don't know that we've ever broken out licensed properties sales in our product line, and that's a level of detail we don't like to get into.

We do have a lot of licenses and a lot of things come in and out.

Is there a corporate goal, or something else that you set regarding licensed properties?

No, we don't do it based at all on sort of an internal objective.

We do it on are there good properties out there that are attractive to us that we can do and make toys in a good deal for shareholders.

So when those things come along, like Batman has recently, or Dora, we try and take advantage of those.

If there isn't a movie property that makes sense for our shareholders, we pass.

So, the contribution of licensed properties kind of goes in and out based on the properties available and the financial arrangements.

Liz, following up on your restructuring question, there will undoubtedly be some consolidation of resources and elimination of management and support functions that will give rise to charges, but the details of the transitions are still being defined and will evolve as new leaders take on their new roles.

These investments generally have an excellent ROI and short payback periods.

Thank you.

Gary Cooper with Banc of America Securities.

A couple of questions -- so, you've got the industry down low/mid single digits the last two or three years.

I'm wondering if you've seen any change in shelf space at retail, or particularly in the mass retail, and kind of what they are telling you.

That's question one -- what they are telling you about the future of shelf space for the whole category.

Second, is Neil going to move to L.A. or is he going to run this entire thing out of New York?

Then third, you know, just trying to get our hands around the different elements that are impacting gross margin.

Can you give us an idea of how far Barbie is down, let's say from its peak or ballpark what percentage of total sales it represents now, again just as we try to get a handle on the impacts to gross margin?

Gary, this is Bob.

Neil is in Los Angeles now, and he will be relocating here permanently, as will Chuck Scothon.

As it relates to total toy industry shelf space, I'm not aware of anything that says that it is really changed.

Certainly, the mix within toys has changed, but broadly speaking, I haven't seen any change.

You were asking specific questions about Barbie.

We've never disclosed any of the brands, including Barbie, kind of the specific numbers or contribution.

It continues to be the largest, most profitable toy in the world.

It's not doing as well as we would like it to do, but it's our largest toy line and it is the toy industry's largest toy line, globally.

A follow-up from Sean McGowan with Harris Nesbitt.

Just a question for Bob, I think I probably have this answer memorized, but I've got to ask.

What's your outlook on acquisitions -- any more likely, or any change in strategy there?

Well, let's see if I get it right.

It's the right thing at the right time at the right price, and all of those things have to come together.

We do have a very strong balance sheet; we do generate significant cash flow, and if the right thing comes along at the right time at the right price, we will make that investment; if not, we will continue returning excess funds to shareholders.

Well, that's what my notes say!

Thank you.

Thank you!

I always like to pass the test, Sean!

Dean Gianoukos with JP Morgan.

Just one quick question -- are you going to, at some point, quantify what kind of savings you may see from the management realignment?

You know, we may as we get into the specifics of it, but let me use that, Dean, to just spend a minute talking about what we've done with the management alignment.

The reorganization is a logical conclusion to our one-company construct for our Core toy business.

We've done this in operations and our supply chain; we have global manufacturing, procurement vendor sourcing, distribution all under one umbrella that's given us lower costs and better customer service.

In our international business, which last year was 42% percent of our company, I think this year, Kevin, we are about 44% international Contribution.

Right.

We have one structure in place that covers Boys and Girls and infant and preschool.

So, consolidating Fisher-Price and Mattel brands divisions makes sense.

It further capitalizes on our scale advantage; it optimizes our infrastructure and there will be some redundancies that are eliminated.

And it gives us an opportunity to develop our best people.

I think, Dean, once the new leaders come in and define what the organization will look like, I think we would put together the cost of that and then our expected savings program that would be related to that.

Okay, and what is the time frame to that, roughly?

Do you know?

No.

Again, we don't want to get into specifics but I think it's fair to say it would be sooner rather than later.

Linda Bolton Weiser with Oppenheimer.

I think there's a Bratz TV show being planned.

Can you just make a comment on what your research shows about kind of turning a fashion doll property into more of an entertainment property?

Is there something about the Bratz brand positioning that makes that a good choice for Bratz but maybe not a good choice for Barbie?

Can you just explain that a little bit?

Well, I don't talk about somebody else's choices.

We have a very strong licensing program at Barbie and part of Barbie has been entertainment.

We haven't gone into a cartoon series on Barbie, but we've done things like these movie properties that have been very successful for the brands and among the top-selling movies, period, and the number one kids movies.

So, we like the entertainment prospects for our brands.

I also like the fact that if you look at what's selling in the doll aisle, it tends to be things with positive imagery, things like American Girl and like Dora-the-Explorer and some of the things we do like Pegasus.

So, I'm optimistic about the future of how products play out in the Girls segment.

At this time, I'd like to turn the conference back over to the speakers for any additional or closing remarks.

Okay, thank you, Dixie.

I'd like to thank everyone for their participation in the call today.

There is a replay, which will be available beginning at 11 AM Eastern time.

The number for the replay is 719-457-0820.

The ID number is 957-8764.

Thank you and have a good day.

That does conclude today's conference.

You may now disconnect.