At the end of 2004, I participated in our Global Leadership Seminar with other

Mattel leaders and experienced a surprising disconnect. While everyone there was
highly aware of Mattels business strategies, not one of us, including myself, could
recite the companys values. It was surprising because we all agreed that Mattels
strength is our company culture, which for generations has been focused on
creating innovative, safe and high quality toys that inspire children to play, learn
and have fun. The disconnect occurred when we realized that our stated values did
not reflect our cultureor visionand therefore were not memorable. This
prompted a team of employees to spearhead an effort aimed at defining our values
to capture the spirit of Mattel today, and serve to guide the companys future
course.
At the end of 2004, I participated in our Global Leadership Seminar with other
Mattel leaders and experienced a surprising disconnect. While everyone there was
highly aware of Mattels business strategies, not one of us, including myself, could
recite the companys values. It was surprising because we all agreed that Mattels
strength is our company culture, which for generations has been focused on
creating innovative, safe and high quality toys that inspire children to play, learn
and have fun. The disconnect occurred when we realized that our stated values did
not reflect our cultureor visionand therefore were not memorable. This
prompted a team of employees to spearhead an effort aimed at defining our values
to capture the spirit of Mattel today, and serve to guide the companys future
course.
Now, a decade since the inception, Mattel continues to evolve as a responsible
company by promoting
broader efforts, including collaboration within the toy industry to develop a common
code of manufacturing principles
We have also begun to develop a long-term Global Sustainability Strategic Plan that
will help us maximize our energy efficiency, minimize waste and produce Mattel
products in a manner that is more environmentally sustainable. In the process of
advancing our environmental stewardship initiatives, we have realized cost savings
and greater product innovation that will ultimately help to maintain Mattels
leadership position in the industry.

1. Along with the economic decline in Europe and US, Chinas economy is
slowing down as well. What is Mattels strategy to sustain its profitable growth?
Compared to some other sectors, the toy industry tends to be somewhat recession
resilient and proved that in the latest economic downturn. Parents and grandparents will
likely sacrifice in order to provide what children want specifically during the holidays.
In addition, toys are at a fairly low price point. And despite a rough economy, the toy
industry in Europe actually grew last year. Mattels global business is comprised of not
only a portfolio of brands, but also of a portfolio of countries and customers, all of which

allow Mattel to diversify risk.

To sustain profitable growth moving forward, Mattel will continue to focus on four growth
strategies in a disciplined way: grow the core, develop new franchises, and partner with
the best entertainment brand, as well as grow and leverage international scale.
2. As Chinas manufacturing cost is rising over 10% every year for the last 5 years
and as the shipping cost is rocketing, what is Mattel doing to keep the total cost
at bay?
Fortunately -- or unfortunately, every manufacturer (not just toys) is in the same
predicament of an inflationary environment, so Mattel isnt alone in trying to manage
margins. While its certainly true that costs in China are increasing, they still do remain
the most competitive for manufacturing so we continually look for other ways to maintain
cost efficiencies throughout our design and production. For every product, we look at a
bucket of various costs from raw materials and labor to logistics. The first step is
about designing a fun, affordable and profitable toy, then manufacturing it and getting it
to market. Manufacturing is just one part of that equation. In addition, about 70 percent
of Mattels toy line is new each and every year, because, lets face it, kids are very trend
driven. Therefore, we have the ongoing ability to design new toys that either improve
the value, allowing a price increase, or allow us to reduce the cost.
3. Many western companies outsource their manufacturing operations to their
contract manufacturers, but Mattel uses a hybrid model: produces its core
products in-house and outsources its non-core products. What is the benefit of
this hybrid strategy?
While the majority of toymakers outsource manufacturing to vendors, we have a
strategic advantage since we make about 50 percent of our toys in our own factories.
We can make our factories extremely efficient when we build a lot of the same things
(like fashion dolls and die-cast cars), and we can innovate with proprietary
manufacturing processes that give us an additional cost advantage. This expertise in
manufacturing our own products gives us an additional advantage when we go out and
negotiate with third-party vendors who make the other half of our volume.
4. With so much focus on green and sustainability today, what is Mattel a
company that makes primarily plastic products doing to meet these demands?
We organize our sustainability efforts around a platform of Design It, Make It, Live It.
Design it with the end in mind focuses on our products and packaging where we are
reducing packaging size, evaluating and implementing alternative materials, such as
sugar cane fiber in packaging and conducting a Life Cycle Assessment. Make it with
eco-efficiencies concentrates on our operations; in fact, we have completed more than
20 resource expeditions to date across our operations base and identified hundreds of
initiatives to conserve resources, reduce cost and engage employees. Our
manufacturing plants continue to implement innovative processes and technologies to
attain eco-efficiencies. Live it with personal commitment is our effort to engage
employees to build awareness and foster a community of sustainable practices -- both
at the workplace and at home.

These efforts have been quite successful at Mattel and we look forward to sharing more
publicly with the launch of our forth Global Citizenship Report later this fall.
5. What are the challenges of marketing toys outside the U.S. in such countries as
Brazil?
Brazil is a shining star in our country portfolio. However, it wasn't always this way. Our
business was small and challenged from a profit and scale standpoint. We made a
number of changes to our business plans to bring discipline to our relationships
throughout the supply chain. Although we faced many short-term challenges, our
patience for the long-term paid off. We also invested wisely in our core brands, such as
Barbie, Hot Wheels and Fisher-Price, to create brand equity and a strong consumer
franchise. Finally, we were consistent in our execution of these strategies over time. The
results have been very impressive. Today, Mattel is the No. 1 toy company in Brazil,
Brazil is now our second largest country outside the U.S. and Brazil has strong
momentum across our brand portfolio. As for the future, and as we say in Brazil: the
next Brazil is Brazil!
We know how to grow businesses around the globe, and we are making investments for
the long term, by adhering to four core principles:

Build on lessons learned from our in-market experience;

Hold true to a longer-term investment horizon;

Continue to invest in our brands to establish them as the premier brands in the
market; and

Work to build our local market knowledge.

This process works for us and the result is a global footprint that provides us with a
strategic competitive advantage. We are excited about the opportunities we have to
continue to build our presence in emerging markets.
6. As children become more familiar with electronic gadgets such as iPad, do you
think the toy industry is going to shift toward electronic games?
This is a very interesting discussion point because about 12 years ago, some
speculated that the toy industry as we know it would disappear because video games
were going to completely take over. Today, the global toy industry is actually is 22
percent larger than it was in 2000. And the video game industry has literally matured
with a much older user demographic, with the average age gamer being 37, and almost
30 percent of all gamers being over age 50 (according to the Entertainment Software
Association).
The bottom line is that play is important throughout our lives, but it is crucial to a childs
development. Play helps to develop cognitive, physical and social skills, as well as the

imagination all the things parents want to see in their kids.

The digital wave is just beginning to build and we believe that there are exciting
opportunities ahead with the convergence of technology and toys. In essence, we
believe the digital space will create a new play pattern where our brands can continue to
flourish. We are launching a whole line of toys under our Apptivity name that uses the
digital space. The new digital wave has created a new business opportunity for us in
licensing intellectual property such as the SCRABBLE and ANGRY BIRDS trademarks
for use on both digital and physical games.
We know that the toy aisle will grow when there is true innovation. And for almost 70
years, innovation has been a key component to Mattels success. Innovation will be at
the heart of our business as we continue to create the future of play.

Mattel's Statement Regarding Change in Tax Status for Dividend Distributions

Mattel is reporting a change in the tax treatment of its dividends. In 2013, Mattels dividend will be
classified as a non-dividend distribution for U.S. federal income tax purposes.
Under U.S. federal income tax rules, corporate dividends are designated as a dividend or a non-dividend
distribution based on the applicable earnings and profits of the entity paying dividend. Although Mattel
has significant retained earnings, these earnings do not constitute as earnings and profits as defined in
U.S. federal tax rules.
Non-dividend distributions are considered a return of capital and are generally not taxable; however, the
recipient must adjust their cost basis to reflect the distribution.
For 2013, 100% of the distribution is a non-dividend distribution. Going forward, assuming no changes in
current business operations or current tax laws, Mattel expects more than 50% of future dividends to be
designated a non-dividend distribution.
The Companys Form 1099-DIV, will be distributed in early 2014, will reflect the change in tax treatment.
This designation does not impact the companys GAAP reporting, liquidity, or its current capital
deployment strategies.
Mattel remains committed to delivering top third to top quartile Total Shareholder Returns and its dividend
strategy remains a key component of its capital deployment strategies.

What happened to cause this change in 2013?

http://investor.shareholder.com/mattel/faq.cfm?faqid=7