Mattel 2012 Annual Report Annual Report Click to play! Please visit: corporate.mattel.com 42837_Cover.indd 1 3/13/13 9:59 AM 42837_Cover.indd 2 3/13/3/13/1313 99:59:59 AM 42837_Guts.indd 1 Nurture StructureStruct Plan Innovate 3/12/13 9:17 2012 Annual ReportReport corporate.mattel.com 1 AM To Our Shareholders: I am writing this letter having just completed one of my were well represented in their toy, video and consumer product busiest months as CEO. February 2013 started with our purchases. This, in turn, pleased fourth quarter and full-year 2012 earnings call, which our retail partners and allowed us to deliver solid results. was quickly followed by a formal presentation to the fi nancial analyst community during New York Toy Fair In 2012, we had record sales, eclipsing $7 billion in total gross sales for and an extensive series of meetings with many of our the fi rst time. Additionally, we grew investors across the country. NPD share in both the U.S. and the Euro51. It also marked the fourth I ended the month meeting with my straight year where we had strong senior management team to discuss gross margins and tight cost our future goals and how we can management, which drove expansion best achieve them. of our adjusted operating margins. All of these achievements resulted In short, February gave me great in adjusted EPS growth of 13%2, perspective on how our consumers, and our second consecutive year customers and owners are viewing of generating more than $1 billion our business. It also helped crystallize in operating profi t. what I need to do to continue to lead this great organization. With results like that, it should not come as a surprise that 2012 was also Having heard many different a strong year for our stockholders. We perspectives over the past few raised our dividend by 35%, paying an weeks, I believe it is safe to annualized dividend of $1.24. For the say the overall response to our year, our stock price increased 32% performance in 2012 has been and our Total Shareholder Return was quite positive. Consistent with that 37% — putting us in the 86th percentile view, as I have mentioned before, of the S&P 500®3. my motto is to be “happy, but never satisfi ed,” and this describes my In my 2011 letter, I laid out our four thoughts about the performance of key strategies for delivering success Mattel in 2012. and achieving our full potential: developing a plan for growth; As they do every year, consumers structuring for growth; nurturing our all around the world showed up for talent; and accelerating innovation. the holiday season, and Mattel was I believe we have made tremendous once again a big hit, as our brands progress against these strategies. 1 NPD US Consumer Tracking Service, Euro 5 Retail Tracking Service. 2 Adjusted earnings per share excludes an $87.1 million after-tax impact on net income ($0.25 per diluted share) related to a $137.8 million litigation charge taken in the fourth quarter of 2012. Adjusted earnings per share is a non-GAAP fi nancial measure. The information required by Securities and Exchange Commission Regulation G regarding these measures is available on the “Investors” section of corporate.mattel.com under the subheading “Financial Information.” 3 Thomson Reuters; Total Shareholder Return measures stock appreciation and assumes reinvested dividends. 42837_Guts.indd 2 3/12/13 9:17 AM corporate.mattel.com 3 “My motto is too be happyhappy,, but never satisfi ed.” Report Annual 2012 442837_Guts.indd2837_Guts.indd 3 33/12/13/12/13 99:17:17 AM Consider the following in 2013: P LAN FOR GROWTH We aligned around a plan for growth that focused on growing our core brands, launching new franchises, optimizing our entertainment partnerships and expanding and strengthening our international footprint. Our growth in 2012 was in fact We continued to see great success led by our own core brands and with our entertainment partners. specifi cally the momentum from our Disney Princess® grew globally Girls portfolio, which includes our along with Jake and the Never Land latest franchise, Monster High®. Pirates™. Batman® saw signifi cant While Barbie® continues to be the growth, driven by the summer movie No. 1 doll property, in three short release, and Disney Pixar CARS® years Monster High has become the and WWE® continued to deliver No. 2 doll property worldwide4. In strong results as they remain fact, Monster High has now grown evergreen properties. to be a $1 billion brand at retail5. Our other core girl’s brand, American Internationally, we grew 4% in a very Girl®, continued to excel and grew challenging economic environment, double digits in 2012. which included strong currency headwinds. For the fi rst time, Mattel Also in 2012, Hot Wheels® grew with achieved more than $1 billion in its successful Team Hot Wheels® gross sales in Latin America. We campaign and its focus on core also continued our growth in Asia, vehicles, tracks and playsets. anchored by China and India, and grew our European region despite the Fisher-Price® continued its transition many challenges the continent faced. from a U.S.-centric business to a global brand leader with sales So, you can see, we are making growing faster internationally than in solid progress against our growth the U.S., as the brand continues to plan. While having a plan to gain global traction. We also had great grow is certainly important, let success in our Fisher-Price Friends me comment briefl y on our other division with the acquisition of HIT three key enablers: structure, Entertainment™ and its fl agship talent and innovation. Thomas & Friends® brand. This gave Mattel not only its fi fth core brand, but full ownership of more properties in the Fisher-Price Friends portfolio. 4 NPD US Consumer Tracking Service, Euro5 Retail Tracking Service. 5 Mattel Financials. 442837_Guts.indd2837_Guts.indd 4 3/13/13 1:51 PM STRUCTURE FOR GROWTH In NURTURE OUR TALENT We alsolso ACCELERATEACCEL INNOVATION Finally, 2012, we successfully made great strides let mem touch briefl y on reorganized our business building our talentent base ininnovation, the lifeblood structure into the Global in 2012. of the toy business. Brands Team/North America Division model, During the year, we added or rotated In 2012, our products and brands which was outlined in ssomeome outstandinoutstandingg leaders to our continuedco to resonate with our executive team. In February, we consuconsumers. For the year, we had last year’s letter. promoted Jean-Christophehe Pean, six of ththe top 20 toys sold in the a proven leader in our internationalational U.S. and managed fi ve of the top business, to lead the transition of 10 propertiproperties6. Our consumersnsumers and Our Global Brands Teams now our U.S. operations into the Northh our retail papartners countount on Mattel corporate.mattel.com focus more of their creative energy America Division. In April, we to bring fun, creativeive and innovative on growing our brands globally, announced the promotion of Jean ideas and proproductsucts into the 5 while our North America Division McKenzie, an experienced Mattel marketplace each and every year. now focuses on planning more and Disney executive, to run our Our innovatioinnovationtioon wasn’t just focused closely with our retail customercus American Girl business upon the on toys ass wee had incredibly creativcreative base. I believe this new sstructure retirement of Ellen Brothers. In innovatioinnovationstions inn advertising, marketingmarketin Report was a criticalritical piece of our sstrong September, we announced the hiringng and reretailetail exexecutionsxecutions around the fi nancial performance: globaglobal of Jessica Dunne, a veteran Disneyey worldworld.rld. We continuec to work to revenues were up, gross marginmar licensing executive, to head up our enenhance ouro culture of innovation Annual was up andd inventories were lowerlo consumer products business. and growtgrowthwth where our employees 2012 for both Mattelttel and our domestic have thehe opportunity to reach their retail customers.ers. full potpotential and where parents, grangrandparentsrandparents and kids around the worldw can engage with our brands in a safe and fun way. 6 NPD US Retail Tracking Service. 42837_Guts.indd 5 3/13/13 11:14 AM In addition to delivering strong We plan to grow our brands long term, Magazine’s “100 Best Companies overall fi nancial performance, we whether core, franchise or our to Work For.” Also, in 2012, also made important investments in partner brands, in the U.S. and even we launched our fourth Global the Company’s future. For example, faster outside of the U.S. We have Citizenship Report, “We Believe we acquired HIT Entertainment, yet to realize the full potential of the Play Matters,” which highlights opened three new American Girl Fisher-Price brand around the globe. Mattel’s commitment to operating stores, established a subsidiary in Our Girls portfolio, which we believe as a responsible member of the Russia and expanded our digital is the most competitive and attrac- global business community. capabilities to help our brands tive in the toy industry, has great Underscoring our efforts, Mattel engage with consumers. We also momentum. We’re excited about was recently listed among the made investments in our infrastruc- the global potential of our second “World’s Most Ethical Companies” ture, including improvements in new franchise, Max Steel®, and for 2013 by Ethisphere Magazine. and expansion of our manufacturing we will launch its toy line this Fall. Mattel employees around the world and IT capabilities to improve We also are excited by the many contribute daily to these efforts, productivity and enable growth.