Mattel Inc (MAT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Mattel fourth quarter 2011 earnings conference call.

At this time all participants are in listen-only mode.

Later we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions) As a reminder, today's call is being recorded.

I would now like to turn the conference over to your host, Drew Vollero, Senior Vice President of Corporate Strategy and Investor Relations.

Sir, you may begin.

Thanks, Operator.

As you know, this morning we reported Mattel's fourth-quarter and full-year financial results.

We've provided you with a slide presentation to help guide our discussion today.

The slide presentation and the information required by regulation G regarding non-GAAP financial measures is available on the investors and media section of our corporate website, Mattel.com.

In a few minutes, Bryan Stockton, Mattel's CEO, and Kevin Farr, Mattel's CFO, will provide comments on the results, and then the call will be open to your questions.

Certain statements made during the call may include forward-looking statements related to the future performance of our overall business.

These statements are based on currently available 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, and our 2011 quarterly reports on Form 10-Q.

And in other filings we make with the SEC we make from time to time.

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

Now I'd like to turn the call over to Bryan.

Thank you, Drew, and good morning.

While I've been a part of this early-morning call for the last year, I'm thrilled and excited to be leading this morning's call as Mattel's sixth CO.

I look forward to seeing many of you soon for our analyst meeting scheduled during New York Toy Fair, where Kevin and I will take you through a preview of what's to come in 2012.

But this morning I'd like to focus on a review of our 2011 performance.

As we look back on 2011 several important factors played out throughout the year.

We maintained momentum in our core brands such as Barbie, Hot Wheels, American Girl, and our new brand franchise, Monster High.

As well as with key entertainment properties such as Disney Princess and CARS 2.

2011 proved to be a transition year for Fisher-Price due to the expiration of the Sesame Street license, combined with the strategic repositioning of the brand.

The retail environment continued to be cautious throughout 2011, due to retailers' concerns about consumer spending in the uncertain global economic environment.

We managed our business accordingly as these events played out during the year.

As a result, 2011 was another strong year for Mattel.

For the fourth quarter, sales grew 1%, and operating income increased by 16%, driven by strong gross margins and tight cost controls.

For the year we grew revenues by 7% and operating income by 15%.

Throughout the year, and particularly in the fourth quarter, we worked closely with our retail partners to ensure that shipping, POS and retail inventories were aligned across our portfolio of brands.

This proved to be important as overall holiday sales were consistent with our expectations, but were concentrated later in the all-important fourth quarter than in prior years.

With the success of this effort in 2011, we entered 2012 pleased with the current state of both our inventories and those of our retail partners.

In fact, 2011 marks our third consecutive year of solid performance, which I'm especially pleased about given the soft global economic backdrop and the highly promotional environment, particularly in the US.

Our portfolio of brands performed across the globe, our POS grew nicely, and we gained a category share according to NPD's most recent data.

In fact, four of the top five properties for the 2011 holiday season came from Mattel.

With strong operating results throughout the year, Mattel's business model created generated strong cash flow, which we continued to deploy to shareholders.

As you already saw in today's press release, we have raised our quarterly dividend by 35%, reflecting an annualized dividend of $1.24.

Dividends remained an all-important component in our deployment strategy, a key driver of our TSR, and an effective way for us to share the value we are creating with our shareholders.

We also continued to repurchase shares, buying back a total of $536 million for the year and almost $1 billion over the last two years.

In 2011 we executed against the strategic priorities that we laid out for you in the beginning of the year.

Which were to deliver consistent growth through continued momentum in core brands, the building of new franchises, optimization of our entertainment partnerships and continued expansion of our international footprint.

Let's start with the core brands.

We were very pleased with performance of the Barbie brand, as it continued to reign as the number one property in the toy industry for the holiday season for the fifth consecutive year.

Barbie's fall entertainment, Princess Charm School, performed very well versus last year, driven by well-coordinated marketing efforts around the world, across toys, DVDs, and consumer products.

This year, we also released a third DVD in November entitled, Barbie, a Perfect Christmas, with associated product which was incremental to last year.

And the newly-launched I Can Be campaign targeting both girls and moms was a success.

Hot Wheels delivered innovation for the holiday, driven by the success of our key fall items, particularly Wall Tracks, which was a complete sellout and proved to be one of industry's breakout products of the year.

The business also benefited from the Team Hot Wheels product launch, with a range of products playing out the Team Hot Wheels storyline that was established in the second quarter of the year.

Overall, given the stiff competition in the vehicle aisle earlier in the year, we're pleased with Hot Wheels performance for the holiday and of the year.

American Girl reached a brand milestone this year, hitting the $0.5 billion sales mark as it concluded its 25th anniversary year.

This year was driven by solid performance of the 2011 Girl of the Year, Kanani, which was completely sold out in mid-December.

As well as two new store openings in Seattle and Washington DC.

In 2011 we shared with you that Fisher-Price would be challenged due to the expiration of our license agreement with Sesame Street.

In addition, we also shared that the Fisher-Price brand needed to undertake a strategic review to reposition the brand for sustainable growth on a global basis.

We've made really good progress in 2011 on the strategic vision for the brand.

We were pleased to see sales essentially flat, excluding Sesame Street.

And encouraged to see improving POS trends for Fisher-Price core in the back half of the year, as we focused on our new messaging and retail execution.

We expect to make progress on Fisher-Price in 2012.

And believe we have the right properties and strategic vision to take advantage of the global opportunity for the Fisher-Price brand.

While the US games industry continued to be soft year-over-year, we focused on driving innovation through one of the best-known brands in our portfolio, Uno, which was the top-seller in the games category this past holiday season.

Additionally, Fijit and Rovio's Angry Birds were also must-haves during the holidays.

And we certainly delivered on the goal of building new franchises.

Monster High continues to delight and excite girls around the world.

In the US, not only was it the fastest-growing fashion doll brand, but it ended 2011 as the number two brand in the category according to NPD.

In international markets, Monster High was a tremendous success in 2011.

And to date, we've launched the brand in more than 35 countries.

But it wasn't just about the toys.

Our integrated worldwide licensing program continued to drive sales of consumer products throughout the fourth quarter.

As for publishing, Monster High books are now helping to build brand awareness in 18 languages and in more than 20 countries.

Our third goal was to optimize our entertainment partnerships.

By partnering with the best and being the best partner.

In the entertainment category, Disney Princess had another strong year, driven by our continuous innovation of the core Princess line.

And the continued success of the hit movie Tangled, as it rolled out around the world.

The CARS property had the single biggest year in the history of the brand.

For the year, CARS was also the number two vehicle brand at retail behind only Hot Wheels.

We also delivered against our fourth goal to continue expanding our international footprint.

In Europe, we experienced growth in the quarter due to strength in Monster High, Barbie, and CARS 2.

Our Latin American business hit a major milestone, representing almost $1 billion of revenue after growing an impressive 14% in 2011.

We estimate that if our Latin American business was a standalone toy company, it would be the fifth largest toy company in the world.

In addition, Asia had another solid year performance.

We are particularly pleased with the development of our businesses in China and India.

Both countries represent examples of patient and disciplined investments in both brands and infrastructure to create a strong foundation for future growth.

While 2011 certainly had its challenges, it was a year we are proud of.

In 2012, we will continue to work to deliver consistent growth and financial performance by executing against our existing Mattel strategic priorities through a continued momentum in core brands; finalizing the acquisition of hit entertainment, home of the premier preschool property, Thomas and Friends.

And capitalizing on the global opportunity for Fisher-Price.

We will continue our work on creating new franchises and optimizing our entertainment partnerships, which for 2012 will include Brave, Batman as well as the Evergreen CARS property.

And we will also continue our focus on expanding our international footprint.

I'm excited and humbled by the opportunity presented to me by Bob Eckert and the Mattel Board of Directors.

Mattel is truly a great company, comprised of great people leading great brands.

My personal mantra is -- Happy but never satisfied.

And I found that many at Mattel share that same belief.

That hunger to improve on all we do is what will propel us to excel in the future.

I'm excited about that journey, and look forward to sharing more with you at the analyst meeting in February.

Now I will ask Kevin Farr, Mattel's Chief Financial Officer, to take you through a financial review of the quarter and the year.

Kevin?

Thank you, Bryan, and good morning, everyone.

As Bryan noted, we executed well against our strategic priorities in 2011.

In the midst of some strong growth global economic headwinds, we made some progress on the three overarching global strategic priorities we set last year, as we outlined the vision of Mattel's sustainable future success.

In 2011 we delivered consistent growth by continuing the momentum in our core brands, by optimizing entertainment partnerships, building new franchises, and working to expand and leverage our international footprint.

In 2011, we continued to make progress on improving our operating margins by sustaining gross margins.

And delivering another round of cost savings.

And in 2011 we generated significant cash flow and continued our disciplined, opportunistic and value-enhancing capital deployment.

Looking at our 2011 results, our second year of high single-digit sales growth, combined with our third year of 50% gross margins and our continued focus on cost reductions, resulted in record operating profit of $1.04 billion.

Consistent with our long-term goals, we made headway on our operating margin expectations of 15% to 20%, improving by 120 basis points from the prior year to 16.6% of net sales in 2011.

We also continued to deploy cash generated from our solid operating results in a disciplined and opportunistic way through dividends, share repurchases, and strategic acquisitions.

In 2011, we reported our shareholders with the dividend payments of $317 million, and share repurchases of $536 million.

Dividends remain a key priority of our capital deployment strategy.

And as part of our earnings release today, we announced a substantial increase in our dividends from $0.23 a quarter to $0.31 a quarter, a 35% increase.

And tomorrow, we expect to close the acquisition of HIT Entertainment and its portfolio of globally recognized leading preschool brands like Thomas and Friends, Barney, Bob the Builder, Fireman Sam, and Angelina Ballerina.

Our disciplined approach to capital deployment has allowed us to maintain A credit metrics, leaving us with the opportunity to continue to focus on driving consistent value creation for our shareholders.

Let's move on to page 5 of our slide deck.

You can see that our worldwide gross sales are up 1% for the quarter and up 7% for the year.

Based on our data, we continue to see good momentum in our POS domestically, as well as internationally.

And based on the latest NPD US data, we gained category share in both the fourth quarter and the full year.

The Euro 5 NPD data also shows Mattel's market share gains outpacing the positive overall toy industry growth seen in the region.

Retailers continued to manage their inventories throughout 2011, due to concerns about consumer spending in light of the uncertain global economy.

As expected, we saw this trend continue in the key holiday season, particularly in the US, Canada, and southern Europe.

As Bryan said, we work closely with our retail partners to ensure that shipping, consumer takeaway and retail inventories were aligned across our portfolio of brands.

With the success of this effort in 2011, we enter 2012 pleased with the current state of both our inventories and those of our retail partners.

Let's turn to page 6 and 7 of the slide presentation to see the business perspective on sales.

Worldwide sales for Mattel girls and boys brands were up 7% for the quarter, and 13% for the year.

Barbie sales grew for the second consecutive year.

And Monster High continued to exceed all expectations globally.

Another premier evergreen brand, Disney Princesses, delivered a very solid quarter, given that it was up against last year theatrical release of Tangled.

We were very pleased with Hot Wheels, which had a solid fourth quarter both domestically and internationally, led by its new innovative Wall Tracks line.

And we continued to deliver good growth in our entertainment and games business, driven by CARS 2, Fijit, and Uno.

Worldwide sales for Fisher-Price brands were down 10% for the quarter and down 3% for the year.

Excluding the impact of the expiration last year of our license with Sesame Street, Fisher-Price brands were essentially flat for the full year of 2011.

Overall, we were able to grow Fisher-Price core revenue modestly, both mostly and internationally in full year 2011.

As Bryan said, we were encouraged to see improving consumer takeaway trends in Fisher-Price core in the back half of the year, as we focused on our new messaging and improved retail execution.

American Girl continues to deliver strong results, with sales in the fourth quarter up 4%, and sales up 5% for the year.

Sales results were buoyed by continued momentum with MyAG, the early sell-out girl of the year, Kanani.

And the new store openings in Seattle and Washington DC.

Despite some foreign exchange headwinds in the back half of the year, our international business, as seen on page 8, showed strong growth across all regions for the quarter and the year.

We're very proud of the fact that our Latin American business continues to gain momentum as we generated almost $1 billion of sales in that region for the year.

And we continue to be encouraged with the strength in Europe despite the challenging economic environment there.

And finally, we are pleased with the growth trends that we continue to see in the Asia-Pacific region.

Now let's review the P&L, starting on page 9 of the slide presentation.

You can see that Mattel reached its full-year goal of achieving 50% gross margins for the third year in a row, driven by a strong performance in the quarter.

For the fourth quarter of 2011, the key drivers in improvements in gross margin were price increases, the positive impact of foreign exchange, mix, and savings from our Operational Excellence 2.0 initiatives, partially offset by rising input costs.

Foreign exchange was a positive for us in the fourth quarter of 2011, unlike the third quarter where we were negatively impacted by the rapid appreciation of the US dollar in late September of 2011.

In fact, the final settlements of our inter-Company receivables at the beginning of the fourth quarter resulted in us pulling back some of the third quarter currency losses.

In the fourth quarter of 2011, the year-over-year currency benefit was about 80 basis point.

A little less than half of the 180 basis point negative impact that we experienced in the third quarter of 2011.

For the year, gross margin was 50.2%, slightly below last year's 50.5%.

Due to higher input costs, royalties, and unfavorable foreign exchange, partially offset by price increases and savings from our OE 2.0 initiatives.

For the full year, gross margins were negatively impacted by the foreign exchange by only 20 basis points.

As seen on page 10 of the slide presentation, we continue to leverage selling, general and administrative spending.

For the fourth quarter of 2011, SG&A expense improved by 110 basis points to 18.6% of net sales versus last year.

For the full year, SG&A expense improved by 160 basis points, to 22.4% of net sales.

For the fourth quarter and full year 2011, the favorability is primarily due to reduced legal spending, reduced equity incentive compensation expense, and savings from our OE 2.0 initiatives.

Partially offset by increased employee-related expenses, investment in strategic growth initiatives, and acquisition-related costs.

With respect to strategic growth initiatives, we continue to invest in American Girl retail expansion, and new IT platforms to provide multi-channel capabilities to American Girl.

And to streamline and improve the efficiency and effectiveness of our product design, development, and manufacturing processes.

Acquisition-related expense in the fourth quarter were $8 million, and about $10 million for full-year 2011.

As I said earlier, we expect to close the acquisition of HIT tomorrow.

For your reference, we included a historical trend summary of our incremental legal and settlement-related costs in the appendix to the slide presentation.

Page 11 of the presentation summarizes the performance of our two-year global cost leadership initiative.

And a summary of our progress in our new initiative, Operational Excellence 2.0.

We continue to make good progress on this new initiative.

For the fourth quarter of 2011, we recognized Operational Excellence 2.0 gross savings of $46 million, including $22 million of structural savings.

And approximately $24 million in legal savings.

In the quarter, we invested approximately $6 million, resulting in net savings of $40 million.

For the fourth quarter of 2011, approximately $25 million of the net savings are in the SG&A line, $5 million of savings are included in gross margin, and $10 million of savings are in advertising.

For full-year 2011, we recognized OE 2.0 gross savings of $94 million, including $53 million of structural savings and approximately $41 million in legal savings.

For the full year, we invested approximately $23 million, resulting in net savings of $71 million.

For the full year of 2011, approximately $44 million of the net savings are in the SG&A line, $15 million in savings are included in gross margin, and $12 million of net savings are in advertising.

We remain on track to realize $150 million in sustainable cumulative savings by the end of 2012.

We continue to expect that the primary drivers of these savings will be generated from a reduction of $75 million of legal spending and $75 million of structural savings executed through a handful of important continuous improvement initiatives.

Turning to page 12.

For the fourth quarter, operating income was $497.5 million, or 23.1% of net sales, up 290 basis points from last year.

For the full year 2011, we delivered record operating income of $1.04 billion.

And we improved full-year operating margins by 120 basis points to 16.6% of net sales.

By delivering more consistent revenue growth, sustaining our gross margins at 50%, and leveraging our SG&A, we continue to show good progress against our long-term operating margin targets at 15% to 20%.

Turning to page 13.

For the fourth quarter, earnings per share were $1.07, which was up $0.18, or 20% versus the prior year.

Earnings per share for full-year 2011 was $2.18, which was up $0.32, or 17%, driven primarily by increased operating income due to higher sales and operating margins, partially offset by higher interest expense and a slightly higher tax rate.

Our worldwide effective income tax rate for the full year 2011 was approximately 21%.

Looking forward to 2012, we expect that our income tax rate will be approximately 22% to 23%.

Now, let's turn to cash flow on page 14 of this slide presentation.

Cash flow from operations for the year was $665 million, an increase of $137 million compared with $528 million in 2010.

The increase was primarily driven by improved earnings growth and the decision not to factor domestic receivables in 2010, partially offset by an increase in working capital usage.

In 2011 we continued to execute our capital deployment framework, improving shareholder returns by increasing the dividend and repurchasing stock.

In 2011, we also issued [$]600 million of senior unsecured notes for general corporate purposes and to partially prefund the pending HIT acquisition.

Net proceeds from the offering were partially offset by the repayment of $250 million of long-term debt that matured in 2011.

We continue to have a strong balance sheet in a business that generates strong cash flow, which we continue to deploy to enhance shareholder value.

Turning to page 15, two key components for our capital deployment investment framework our dividends and share repurchases.

In 2011 Mattel returned over $850 million shareholders using these levers.

A key aspect of our framework has always been dividends.

Historically, dividends are a proven driver of total shareholder returns for both the overall market and Mattel.

For us, dividends have been a key value driver for Matter's total TSR, and an important reason why our TSR continues to stand out versus the S&P.

We continue to target the top quartile dividend payout ratios of 50% to 60% of EPS.

The Company announced today that Mattel's Board of Directors raised the quarterly dividend from $0.23 to $0.31 per share, reflecting an annualized dividend of $1.24, a 35% increase over last year.

The increase in our dividend in 2012 reflects two key drivers.

First, as Bryan said, we continue to believe that dividends have proven to be an effective way to return funds and drive total shareholder returns.

And second, this increase better aligns recent EPS and dividend growth.

Both EPS and dividends now have grown over 20% since 2009.

The annualized dividend of $1.24 per share is slightly above the midpoint of our target payout ratio.

Looking forward, we expect that our dividend would generally increase with our growth in earnings and within our targeted payout ratio of 50% to 60%.

Resulting in a dividend yield consistent with the top quartile yields of best-in-class consumer good companies.

Another important component of our capital deployment framework is share repurchases.

In 2011, we repurchased over 20 million shares at an average price of $26.32, reducing share count by about 7% over the last two years.

Looking forward, we will continue to repurchase shares opportunistically.

The Company will continue to deploy excess cash consistent with its longstanding capital investment framework, which includes investing in our business, paying a top quartile dividend, repurchasing shares, and executing targeted mergers and acquisitions.

Consistent with our framework, the Company intends to maintain a strong balance sheet with targeted year and cash of $800 million to $1 billion and maintain A credit metrics.

So to summarize, we achieved our 2011 objectives and continue to make good progress across all of our businesses.

In a very challenging economic environment, we achieved record net sales of $6.3 billion in 2011, topping a very solid 2010 of performance, with strength in both domestic and international markets.

We achieved the third consecutive year gross margins slightly above our long-term targets of 50%.

We delivered record operating profit over $1 billion to the bottom line, improving our operating margin for this third straight year.

And we continued to execute our disciplined approach to capital deployment, increasing our dividend, buying back shares, and signing a deal to acquire HIT Entertainment, which we have the opportunity to build brands with great franchises like Thomas and Friends on a global basis in both toys and consumer goods.

We believe we are well-positioned as we enter 2012.

We will continue to create shareholder value by executing our overarching global strategic priorities.

First to deliver consistent growth.

Second to build on the progress we've made in improving our operating margins.

And third, to generate significant cash flow and continue our disciplined, opportunistic and value enhancing deployment of that cash.

That concludes my review of the financial results.

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

Operator?

(Operator Instructions) Robert Carroll, UBS.

Congrats.

Great quarter in what looks like a tough environment.

One quick thing.

I was hoping -- in two parts -- to look at gross margin a little bit closer just to see if you guys could get a little bit more granular in terms of what some of the other benefits were that we might not be thinking of.

And then, secondly, as you look towards 2012, with where input costs are, in order to protect that 50% level going into 2012, what pricing do you think might be needed?

Yes.

Let me talk about gross margin and benefits.

Overall, we were pleased to see gross margins improve in the fourth quarter, resulting in full-year gross margin of 50.2%.

Which is the third consecutive year of delivering full-year gross margins at about 50%.

Historically, our gross margins are usually highest in the fourth quarter given the later timing of our shipments in key TV drivers, which generally have higher price points.

For the full year, our gross margin rate of 50.2% was essentially flat as compared to the prior year rate of 50.5%.

The 30 basis point decline in gross margins is primarily due to increased product costs and higher royalties related to increased sales of licensed entertainment properties.

Which were offset by our price increase and cost savings from manufacturing efficiency programs and our Operational Excellence 2.0 initiatives.

For the full year, the impact of gross margins related to foreign currency was minimal, about a negative 20 basis points.

So those are the things that really drove gross margins for the year.

As we look to 2012, and we believe that we are operating in a global environment where input costs and labor costs and transportation costs will continue to rise, we continue to see tremendous volatility in crude oil prices impacting resins and transportation spending.

If you look at last year, oil has moved from about $112 per barrel last May.

It dropped to $80 per barrel in September and has settled in at about $100 per barrel over the last few months.

We're also seeing in 2012 the government in China recently announced a 13.6% minimum wage increase in Shenzhen, effective 1-1-2012.

We also expect that other southern China provinces will raise the minimum wage by 13% to 18%, probably effective March 1 of 2012.

So we are seeing input costs increase across the board in things like resins and packaging and transportation.

So in 2012, we'll continue to develop our product line appropriately to deliver good value to our consumers, good margin to our customers, and good margin for Mattel.

And as we look at our outlook for 2012, we make detailed cost assumptions to our input costs.

And our goal is to offset as much of the increases in product-related costs as we can through continued focus on manufacturing efficiency and OE 2.0 cost savings programs.

To fully or partially offset any expected cost headwinds.

When we look at 2012 though, we believe that our efficiency and cost-savings initiatives will only get us part of the way towards offsetting the expected increase in input costs, Rob.

So, as a result, we've instituted a mid single-digit price increase effective on January 1 with a goal of continuing to sustain our gross margins at around 50%, which we've achieved for the last three consecutive years.

Given that that's already taken hold now, obviously retailers will be reluctant to meet that.

But obviously they understand what's going on.

What's the initial reception been?

Hi, Rob, it's Bryan.

Talking about price increases with our retail partners is one of the more difficult things that we have to talk about because nobody likes to take prices up.

Having said that, we're all seeing the same kind of commodity increases, whether it's in transportation costs, labor, et cetera.

So I think generally there is an understanding of the situation across-the-board.

As Kevin said, we work very hard to do two things.

Number one is offset as much of these commodity increases as we can with other efficiencies throughout the organization.

The other thing we do, and I think we've done a particularly good job of it in the last year, is make sure we're delivering brand value and play value in all that we do.

And in doing that, that helps create value for the consumer.

As Kevin said, we went through it last year, our share grew by almost 1 point in the category, which is great.

Our POS was up.

And so we have some brand momentum that we've built up this year that we expect to continue into next year.

Great.

Thanks, guys.

Sean McGowan, Needham & Company.

Couple questions.

One, I was hoping at this point with HIT about to close for tomorrow, if you could help us out with some details on what we can expect the impact to be on the P&L.

I'm not looking for dollar amounts but is it generally accretive to gross margin?

Is it dilute to some other income lines?

Help us out with what you expect the interest expense to be.

We're all going to be redoing models, and it would be nice to take care of that in one shot.

Yes.

I think overall for 2012, we expect the transaction not to have a material impact on 2012 earnings, as profits would be offset by deal costs, restructuring costs, and higher interest expense.

But looking forward, I think it will be increasingly accretive as the benefit of owning these brands is reflected in Mattel's results, including the addition of Thomas Wood business in 2013, cost synergies in the retention of Thomas plastic and die cast business from 2015 onwards.

And Sean, they have a different business model than ours.

Theirs is a licensing model.

So they generated, I think, last year about $180 million of revenues, two-thirds of which related to Thomas and Friends.

They do have higher gross margins as a result of that, so there's good flow through.

They do have higher SG&A, though, due to the fact that the SG&A base is on that royalty income or licensing income.

And overall, they have good EBIT margins, as we've told you before -- EBIT margins.

Very good.

Then, two other quickies.

One, can you comment on how you feel about point-of-sale inventory at this stage going into 2012.

There's been a lot of flip-flopping the last few years.

And then final question for Bryan, might as well ask it now.

Are we expecting any kind of change in your philosophy towards guidance?

That word.

I don't think we're going to use the G word, Sean.

No, we're not going to change our strategy in terms of guidance.

We're going to continue what we have in the past.

Let me spend a minute talking about POS and inventories.

The toy industry is a dynamic industry, as you well know.

We knew going into 2011 that it was going to be a year where, given the economic situation, and some of the carryover issues that the industry faced at the end of the 2010 season, it was very likely that our retail partners would take a cautious approach to the holidays.

Because of that, we too took a cautious approach to our inventories internally.

And we took a cautious approach with our retailers, as well.

So when you look at POS, our POS overall grew in the fourth quarter.

Our share grew by about 1 point overall in the fourth quarter, which we're very pleased with.

And as a result, our inventory situation at retail, we think, is in pretty good shape.

It looks like on a dollar basis it's up maybe 1 or 2 percentage points.

And we believe on a unit basis it's relatively flat.

Given the momentum we have been POS and brand share, we're feeling like we're in pretty good shape at retail.

Thank you.

Linda Bolton Weiser, Caris.

Bryan, I imagine that you and Bob working so closely together for so many years were pretty much on the same page with regard to most strategic and philosophical things.

But is there anything subtle that maybe you deviated a little bit from Bob's viewpoint?

Or something that you would like to do a little more with in the Company versus, say, Bob?

We're going to spend a little time in February talking more specifically about what our plans are, and so I won't get into a lot of detail here.

But I'll give you two headlines.

One is, we do want to continue the momentum and the continuity of delivering consistent performance in both our top-line and bottom-line financial performance.

I think we've done a pretty good job of that over Bob's 11 year run.

That's something we're proud of and that we expect to continue going into the future.

We also know that this is a dynamic industry, and that as we look forward we need to deliver consistent growth.

So you'll hear us talk a little bit more about some of the new growth initiatives that we might be thinking about in a couple of weeks.

Great.

And can I just ask, on the cash flow, what's the quantification of how much the factoring comparison boosted the operating cash flow for 2011?

What was that amount?

It was about $35 million.

Okay.

And can I just ask about mix?

It seemed like mix had a greater effect on the positive gross margin this quarter than last quarter.

Is that just like Fisher-Price being down more and that's a relatively lower margin area?

Or is there some subtleties on the mix that you can give us a little more color on?

Yes.

I think mix with a slight positive for the fourth quarter of 2011.

For the full year, mix had a minimal impact either way.

For the fourth quarter 2011 there was a slight benefit from mix.

It was due primarily to higher shipments of Barbie and Monster High fashion dolls.

As well as what you've indicated -- the relative lower sales of Fisher-Price brands.

Thank you very much.

Eric Handler, MKM Partners.

As you enter your third year now with Monster High, can you maybe give a little perspective on, when you have a successful line like this, is this the year when the absolute revenue dollars increase substantially?

Or how should we think about Monster High as a property now as it gets to this more mature type of level?

Good morning, Eric.

We don't give specific guidance on any particular brands, but what I can tell you is Monster High exited 2011 with a lot of positive momentum.

If you look at retail there's not a lot of inventory there.

We had a lot a very popular product out there, including the Hydration Station, which is one of my favorite toys in the line.

So as we look to 2012 we expect that momentum to continue.

We've got a lot of exciting ideas for Monster High, so I think you can continue to expect to see this grow.

Okay.

And as a follow-up, with regard to HIT, am I understanding correct that from an operating margin perspective, that that should be neutral to the operating margin as well?

I think overall, because of the restructuring expenses and deal costs, it should not be impacting margins.

Slightly, but not much materially this year.

In the future, it will have more of an impact on expanding margins as we don't have deal costs and restructuring costs.

Great.

Thank you.

Michael Kelter, Goldman Sachs.

I wanted to follow-up on the inventory questions.

It sounds like you guys, on your own books and for your retail partners, are all in good shape.

But some of your competitors aren't.

So I'm curious if you could talk about how you're impacted when some primary toy competitors have excess inventory in the channel and how retail ordering impacts Mattel.

Hi, Michael.

Good morning.

I'm not going to comment on the situation that others in the industry may or may not have.

What I will comment is on what we did.

And we worked, again, very hard with our retail partners to make sure we had the right balance of POS shipments and inventory for the year.

We expect, given the momentum that we had with our brands, that we will continue to see our brands be on the shelf, and get the spring line out there and launch what we need to get launched for the spring.

So we're not anticipating any big bumps in the road as it relates to that, because of the momentum we have.

I think generally, retailers, when they're in that situation, they focus in on the brands that have momentum.

And they basically buy what's selling through.

That's what we saw with our brands in 2011.

And then turning to Europe, where it looks like they may be slipping into a recession.

Have you seen any impact from consumers or retailers, either to the industry at large or to your own business at this point?

Good question, Michael.

Actually, when we look at the toy industry in Europe, for the year it actually grew around 2% to 3%.

So we view that as quite healthy.

Despite all the press and things that you read about what's going on in Europe, the toy industry continues to be resilient.

I've been in this industry for 11 years now, and it is amazing to me that if you look at the toy industry today versus when the economic crisis started, the industry is about 5% larger.

And that's despite commodity costs that we all experienced being up about 30%.

So we're continuing to deliver value as Mattel to consumers.

We know consumers in Europe want to buy our toys.

Our share was up in Europe, our POS was up in Europe.

And we worked very hard with our retail partners to make sure that we were well represented.

And then Fisher-Price, and you have the turnaround which you presented last time, we all got together.

Can you maybe talk about any indication of early success with repositioning or whether it's too early?

And what a timeline for a turnaround for Fisher-Price might look like if it is successful?

It is too early.

Recall the Joy of Learning advertising campaign and repositioning just launched in late October.

Just in time for the peak of the holiday selling season.

So it is early.

But despite having said that, I think we told you we're going to focus on our messaging and retail execution on Fisher-Price.

So we were encouraged on Fisher-Price core to see our POS improve throughout the year.

And see consumers really have a positive response to the messaging.

So 2012 is likely to be another transition year for Fisher-Price because there's a lot of work to do.

But we're pleased with the progress we've made and look forward to sharing more details about that with you in a couple weeks.

And then lastly, I wanted to ask about the price increase, which is not, obviously, the first one in the last several years.

Everyone's been forced to take price.

What have you learned about elasticity in the last couple of years?

Which product lines or categories are things are more exposed to consumer changes in demand?

And which are more stable like?

And how do we think about elasticity for your business at this point?

I'd go back to the comment I made earlier, because we have such a broad portfolio of brands and countries that we are doing business in.

If you go back and look, the toy industry is roughly 5% larger than it was at the beginning of the economic crisis, the commodity costs are up about 30%.

When you look at that, it would tell you that the toy industry is pretty resilient to some of these economic crises and issues.

The other thing that we think we do particularly well is we need to innovate.

This is all about play value and brand value.

And despite whatever's happening with cost, our job here is to make sure we're delivering brand value and play value.

Monster High is a great example of creating a new brand with content and excitement, targeted to an older girl with some really innovative product.

And it's selling quite well despite an economic crisis.

So I'm not going to get into details beyond that, but overall I think when you look at the portfolio of brands and countries, we're feeling relatively positive about what we've had to go through over the past four or five years.

And I think, Bryan, your point earlier about costs being up about 30% in the industry, still up from 2007, talks about toys hold up well in tough economic times.

And I think the elasticity is pretty tight from that perspective, as consumers want to buy toys for their kids for their birthdays, for their friends' birthdays and for holidays.

Thank you very much, guys.

Gerrick Johnson, BMO Capital Markets.

You guys mentioned labor costs increases in China, but half your production is elsewhere.

Can you talk about the labor situation in places like Malaysia, Thailand, Indonesia?

I won't get into specifics.

By the way, good morning, Gerrick.

Won't get into specifics on individual countries.

But there is labor pressure just about everywhere.

I would say that the pressure in China is probably slightly higher than in other countries.

But we're seeing it globally, as economies continue to evolve and grow and mature.

Labor rates go up.

And one of the strengths that we have is your point, which is we do manufacture in a variety of countries.

So we're not as tied to Chinese labor rate increases as perhaps some others may be.

That's something that we're always looking at and trying to innovate so as we're creating toys we know how to mitigate, whether it's commodity costs or labor costs or other things.

What I could tell you, though, Gerrick, is China has been growing high double digits.

I think in some of the other countries, they're more like mid single digits to high single digits.

So it's not the rate that it's growing in China.

Great.

Thank you.

And Kevin, on interest expense, are there any one-time costs for the prepayment of debt in there?

That was not the repayment of the $250 million of debt.

That was scheduled maturities.

So there was no costs associated with that other than paying if off.

Okay.

And lastly, were you guys satisfied with your customer service levels in the fourth quarter?

IE, do you feel you left any sales on the table?

Again, we worked very hard with our customers to make sure that we lined up POS so that we would all end up in a good inventory situation.

Recall that in 2010 we were chasing demand because of some issues that we had had.

And as we think about really the top 40 toys, we're always trying to hit those exactly right.

You never quite hit those just exactly right, but we are pleased with the performance we had.

And I think our retail partners were, as well.

Yes.

We sold out on things like Fijits, and American Girl, Girl of the Year.

But that's typical, as you know, Gerrick.

Every year you've got some hot products that you can't anticipate demand perfectly.

And we had some great products.

What's been great was we had four of the top five products according to NPD -- or, properties.

So we had good momentum, obviously, during the holiday season.

Okay.

Thank you, guys.

Margaret Whitfield, Sterne, Agee.

Bryan, as we look out to 2012, we probably will continue that tight retail inventory management and the soft global economy.

And Mattel has tough comparisons against the CARS 2 launch.

Wondered if you could give us some thoughts on how we should think about 2012.

I know you're waiting until Toy Fair to tell us about all the new products, but any additional thoughts would be helpful.

Thank you.

Good morning, Margaret.

As we look to 2012, we think it's going to be another year where both consumers are going to be a little cautious and retailers are going to be a little cautious because we've got economic concerns out there.

We have an election here in the United States.

So there's a lot of reason, I think, for the macro environment in 2012 to be not that different than the macro environment in 2011.

As we look at 2012, we are really looking at the momentum we've been building on our core brands, whether it be on Barbie and Hot Wheels.

We're, as I mentioned, transitioning on Fisher-Price.

We've got some great entertainment partnerships with Disney Princess, and Batman and Brave next year.

So when you look at the brand side, I think we've got momentum.

Then when you look at our country portfolio, we have a lot of parts of the world that are not as stressed as Western Europe and the United States.

Latin America, for example, is continuing to do pretty well economically.

And as I mentioned, our business is not only growing but it's got scale at about $1 billion.

So we think there's more growth opportunity there and more opportunity in Asia.

So it's going to be a year filled with challenges, as every year is.

One thing we do know is that Christmas will come in 2012.

And our hope is that there are more Mattel toys under the tree in 2012 than there were in 2011.

On games, you mentioned earlier that the category was soft.

Do you see this is a secular trend?

Or how is Mattel viewing the games as a category go-forward?

We felt good about our performance in the games category.

I'd start with Uno.

Uno is a great global brand for us.

It's actually the number three brand in terms of games overall.

And it did very well in the US this year, being number one in the category.

And we basically grew it through innovation.

So we look at our core brands, we try and come up with innovative ideas.

Rovio Angry Birds, as I think I mentioned the last time we were together, there were a number of people who thought we were probably barking up the wrong tree by trying to make a plastic toy out of a digital game.

And it turned out to be a massively popular game and sold out.

So, like other parts of the toy business, we think innovation is key in understanding how to play in digital.

And understand how to, as we did in the case of Angry Birds, take advantage of digital to create innovation and excitement in the games category.

Finally, when will we have some entertainment support from Monster High?

Any movie deals on the horizon?

One of the great things about Monster High is it's been a fantastic success, and as I said, number two brand in the US without any kind of entertainment support.

We are continuing to do Webisodes, and support it with books and things of that nature.

We always have -- I shouldn't say always but the last couple of years we've had a Halloween special on Nickelodeon, and they continue to be a great partner with us on that.

So if something happens with Monster High from a theatrical standpoint, that's great, but the brand has been a success without it.

And we're going to continue to build that brand using the building blocks that we have so far.

Thank you.

John Taylor, Arcadia Investment Corporation.

I've got a couple questions, too, if I can.

Following up on Monster High, and Barbie.

So both Barbie and Monster High have been growth drivers for the last couple of years.

I wonder if you could give us any sense as to the impact of licensing income on the P&L at this point.

You mentioned mix was favorable so I'm wondering if some of that might be coming there.

And maybe when do you generally get your royalty checks for Q4?

Are those booked or accrued in the fourth quarter?

Or are those going to hit in the first quarter?

Hi, JT, it's Bryan.

Let me start and I'll ask Kevin to give you some of the details on it.

We don't really divulge any details on brand specifics, including what's consumer products and what's not.

As we always said, for example, with Barbie, depending on the country, the consumer product sales are anywhere between 40% and 60% of our brand sales.

And Barbie, we've always talked about it being a brand.

It's not a toy, it's a brand.

Monster High, we launched it as a brand, not a toy.

So obviously consumer products is a very important part of it.

And as you know, it's a very attractive business for us in terms of not just building the brand but also from a margin standpoint.

So I'll let Kevin give you a few more details.

But we like them both because they're brands, and that's what we like to do at Mattel is build brands.

Yes, JT, I think overall the licensing income was not a huge driver of our gross margin improvement with regard to the mix.

It really was the underlying fashion dolls.

The toys, both from Barbie and Monster High.

So the licensing income did help but the major driver was more fashion dolls.

Okay.

Great.

And then following up on Margaret's question maybe a little bit on the timing of revenue.

So last year, if you could maybe help us think through the arc of the year.

Last year you had the entertainment properties hitting maybe a little bit in Q1, a lot in Q2.

And then I'm wondering if the price increase effective January 1 drove any revenue in the fourth quarter, which might take it a little bit away from the first quarter.

So it seems like you're set up for a weighting that's way more second half heavy in 2012 than it was 2011.

Any thoughts on that?

Let me start with we're not going to get into quarter by quarter what's going to happen for 2012.

What I would tell you is that the pricing increase for this year is essentially, almost by default, on spring and fall items for this year.

So we're not aware of any significant impact on shipments for 2011.

What I would tell you is that we're going to concentrate on brand momentum.

We talked a lot about POS and share this morning.

We're going to continue to concentrate on creating positive POS for our brands because that's what ultimately drives our shipments.

I think with regard to year end 2011 and the price increase, retailers are tightly managing inventories, so I don't think they really bought ahead due to the price increase.

I do think, as you mentioned about first half, second half, I do think, since we shipped a lot of CARS in the second quarter in 2011, we'll have tough comps in the second quarter.

So it probably will be more of a back half versus first half due to the fact that CARS will continue to do well this year.

It's an evergreen property.

It's done well over the last five years.

But we won't see that big lift in the second quarter as retailers were really focusing on CARS as a tent pole event.

And were really getting their shelf space up to drive that brand through the summer season.

And then last question on HIT.

So you've already had a big chunk of the toy license which is in your revenue base now.

What do you expect the primary revenue driver on HIT to be in 2012?

Is it going to come from international, is it going to come from licensing income?

Because the Wood stuff doesn't come on until 2013, right?

So I'm wondering what you're looking at as specifically the driver for that property this year?

Yes.

I think it is growing the business in the licensing area.

And growing its global reach.

We saw at least in the business that we had, the license business this year, with regard to die cast, and plastic toys, we saw good growth of Thomas outside the US in our second year of that license.

JT, one of the things that we love about the Thomas brand is that it's a great brand and it still has, we think, lots of global potential.

So you'll continue to hear us talk about the opportunity to grow Thomas out of its current core markets, and broaden its participation in markets like Latin America for example.

Okay.

Thank you.

Tim Conder, Wells Fargo Securities.

Bryan, first of all, congratulations on the new and expanded duties.

A couple quick ones here to wrap it up.

On HIT, I just wanted to revisit.

I think you'd said before that it's going to take you about two years to get everything fully integrated, bringing in the plastic and the die cast into your own factories and so forth.

So post acquisition, integration costs and everything, do you anticipate, as you see things at this point, that 40% EBITDA margin getting back to that level once you get everything all input?

That's the first question.

And then similarly on Fisher-Price, I think you'd mentioned that maybe it's going to be a two- to three-year turnaround process in the past.

And you just put in some new management there during 2011, midpoint.

So just maybe an update on that timetable.

Yes.

On the first one, yes, I think once we get HIT integrated, we continue to grow the business, globally, I would expect that our margins would be as good or better than they delivered previously.

And, Tim, on Fisher-Price, like I mentioned in the remarks, we're very happy with the progress that we've made on the Fisher-Price brand relaunch.

The Joy of Learning campaign just kicked off in October.

As I think we mentioned, we're going to be working more on digital communication with the new moms.

And it's a huge global opportunity.

So we'll talk a little bit more about what our plans are for 2012 when we get together with you again in a few weeks.

But it is going to be another transition year for Fisher-Price.

There's a lot of things that we want to do to get this right.

We're going to be patient and get it done the right way so that we have a brand that will continue to be a very prosperous into the future.

Thank you on that, Bryan.

And lastly, just a little bit on legal, where everything stands.

You've given some guidance on the cost side.

But the appeal of the original $310 million judgment, where does that stand?

And then anything that you can say, MGA has been talking about antitrust in the US.

I think they filed a fourth iteration of the same thing.

And then talking about the EU potential also?

So just on those three topics as it relates to legal?

I'm not going to spend a lot of time commenting on it because this is litigation that's ongoing.

But I will make two comments about timing.

Number one, on our appeal, we expect to file our opening appeal brief by the end of February -- February 27.

So that is underway.

As it relates to the antitrust case here in the US, we filed a motion to dismiss that complaint, and we expect the motion will be heard about February 13.

So those are the two things that I can comment on as it relates to MGA.

Thanks, gentlemen.

Thank you.

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