Note 12—Segment Information

Description of Segments

Mattel sells a broad variety of toy products which are grouped into three major brand categories:

Mattel Girls & Boys Brands—including Barbie fashion dolls and accessories (“Barbie”), Polly Pocket, Little Mommy, Disney Classics, and Monster High (collectively “Other Girls Brands”), Hot Wheels, Matchbox, and Tyco R/C vehicles and play sets (collectively “Wheels”), and CARS, Radica, Toy Story, Max Steel, WWE Wrestling, and Batman, and games and puzzles (collectively “Entertainment”).

Fisher-Price Brands—including Fisher-Price, Little People, BabyGear, and Imaginext (collectively “Core Fisher-Price”), Dora the Explorer, Go Diego Go!, Thomas & Friends, Mickey Mouse Clubhouse, Disney’s Jake and the Never Land Pirates, and See ‘N Say (collectively “Fisher-Price Friends”), and Power Wheels.

American Girl Brands—including My American Girl, the historical collection, and Bitty Baby. American Girl Brands products are sold directly to consumers via its catalog, website, and proprietary retail stores. Its children’s publications are also sold to certain retailers.

Prior to 2012, Mattel’s operating segments were divided on a geographic basis between domestic and international. The domestic segment was further divided into Mattel Girls & Boys Brands US, Fisher-Price Brands US, and American Girl Brands. Effective January 1, 2012, Mattel modified its organizational structure into North America, International, and American Girl divisions. This reorganization was implemented in order to simplify the organization and to move decision-making for the North America business closer to its retail customers and its toy consumers. Prior to the reorganization, the functions of the US operations were divided between the Mattel Girls & Boys Brands US and Fisher-Price Brands US operating segments. Both of these segments had distinct and separate reporting structures. The reorganization consolidated functions within the US into a single reporting structure that is no longer structured around brands, including the US sales, customer marketing, customer forecasting, customer service, and finance teams. The new structure is primarily organized based on customer-focused teams that are designated to specific retail customers. As a result, the reorganization changed the way the US business is being operated, and combined the US business with Canada under one leadership team, to form the North America division. As part of the reorganization, new executive positions were created and prior executive positions within the US operations were eliminated or restructured to align to the North America division. Mattel’s strategic goals and internal reporting of financial information have also been changed consistent with this reorganization into the North America division.

The change to Mattel’s organizational structure and formation of the North America division resulted in changes to Mattel’s operating segments. The new operating segments are: (i) North America, which consists of the US and Canada, (ii) International, and (iii) American Girl. The North America and International segments sell products in the Mattel Girls & Boys Brands and Fisher-Price Brands categories, although some are developed and adapted for particular international markets. Factors considered in determining the new operating segments include the nature of business activities, the management structure directly accountable to the Chief Operating Decision Maker (“CODM”) for operating and administrative activities, availability of discrete financial information, and strategic priorities within the new organizational structure. These factors correspond to the manner in which the CODM currently reviews and evaluates operating performance to make decisions about resources to be allocated to these operating segments. Effective January 1, 2012, the CODM reviews key financial information, including gross sales, operating income, accounts receivable, and inventory for the new operating segments. Prior to 2012, the CODM reviewed and evaluated operating performance to make decisions about resources to be allocated based on the Mattel Girls & Boys Brands US, Fisher-Price Brands US, American Girl Brands, and International segments. Operating performance for Mattel Girls & Boys Brands US and Fisher-Price Brands US is no longer reviewed by the CODM.

The prior period operating segment amounts have been reclassified to conform to the current year presentation.

Segment Data

The following tables present information about revenues, income, and assets by segment. Mattel does not include sales adjustments such as trade discounts and other allowances in the calculation of segment revenues (referred to as “gross sales”). Mattel records these adjustments in its financial accounting systems at the time of sale to each customer, but the adjustments are not allocated to individual products. For this reason, Mattel’s CODM uses gross sales by segment as one of the metrics to measure segment performance. Such sales adjustments are included in the determination of segment income from operations based on the adjustments recorded in the financial accounting systems. Segment income represents each segment’s operating income, while consolidated operating income represents income from operations before net interest, other non-operating income, and income taxes as reported in the consolidated statements of operations. The corporate and other expense category includes costs not allocated to individual segments, including charges related to incentive compensation, share-based payments, and corporate headquarters functions managed on a worldwide basis, and the impact of changes in foreign currency rates on intercompany transactions.


	For the Year
	2012			2011			2010
	(In thousands)
Revenues by Segment
North America	$	3,330,217		$	3,296,995		$	3,190,305
International		3,126,088			3,001,705			2,679,273
American Girl		596,298			542,387			517,032

Gross sales		7,052,603			6,841,087			6,386,610
Sales adjustments		(631,722	)		(575,050	)		(530,415	)

Net sales	$	6,420,881		$	6,266,037		$	5,856,195

Segment Income
North America	$	810,271		$	770,276		$	671,242
International		571,413			513,414			490,733
American Girl		121,642			111,104			113,442

		1,503,326			1,394,794			1,275,417
Corporate and other expense (a)		(482,311	)		(353,693	)		(373,515	)

Operating income		1,021,015			1,041,101			901,902
Interest expense		88,835			75,332			64,839
Interest (income)		(6,841	)		(8,093	)		(8,434	)
Other non-operating (income) expense, net		(6,024	)		3,189			(1,328	)

Income before income taxes	$	945,045		$	970,673		$	846,825

(a)

Corporate and other expense includes (i) the Litigation Charge of $137.8 million for 2012, (ii) incentive compensation expense of $108.1 million, $75.3 million, and $106.7 million for 2012, 2011, and 2010, respectively, (iii) $13.4 million, $14.9 million, and $21.0 million of charges related to severance and other termination-related costs for 2012, 2011, and 2010, respectively, (iv) share-based compensation expense of $63.3 million, $53.5 million, and $67.1 million for 2012, 2011, and 2010, respectively, (v) a reduction to the legal settlement reserve of $8.7 million for 2010 and benefits from insurance recoveries of costs incurred in connection with product liability-related litigation of $4.8 million for 2010, (vi) $7.5 million Gunther-Wahl Productions legal settlement for 2011, and (vii) legal fees associated with MGA litigation matters.


	For the Year
	2012		2011		2010
	(In thousands)
Depreciation/Amortization by Segment
North America	$	76,593	$	66,477	$	66,777
International		65,340		63,026		63,730
American Girl		15,622		15,210		13,304

		157,555		144,713		143,811
Corporate and other		16,727		16,585		21,997

Depreciation and amortization	$	174,282	$	161,298	$	165,808

Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances.


	December 31,
	2012		2011
	(In thousands)
Assets by Segment
North America	$	694,479	$	741,603
International		807,911		795,257
American Girl		90,335		90,820

		1,592,725		1,627,680
Corporate and other		99,165		106,007

Accounts receivable and inventories, net	$	1,691,890	$	1,733,687

Mattel sells a broad variety of toy products, which are grouped into three major categories: Mattel Girls & Boys Brands, Fisher-Price Brands, and American Girl Brands. The table below presents worldwide revenues by brand category:


	For the Year
	2012			2011			2010
	(In thousands)
Worldwide Revenues by Brand
Mattel Girls & Boys Brands	$	4,186,550		$	4,120,564		$	3,630,159
Fisher-Price Brands		2,252,339			2,159,178			2,220,499
American Girl Brands		567,521			510,936			486,644
Other		46,193			50,409			49,308

Gross sales		7,052,603			6,841,087			6,386,610
Sales adjustments		(631,722	)		(575,050	)		(530,415	)

Net sales	$	6,420,881		$	6,266,037		$	5,856,195

Geographic Information

The tables below present information by geographic area. Revenues are attributed to countries based on location of customer. Long-lived assets principally include goodwill, property, plant, and equipment, net, and identifiable intangibles, net.


	For the Year
	2012			2011			2010
	(In thousands)
Revenues
North American Region (a)	$	3,926,515		$	3,839,382		$	3,707,337
International Region:
Europe		1,685,274			1,626,120			1,478,443
Latin America		1,008,236			991,435			867,557
Asia Pacific		432,578			384,150			333,273

Total International Region		3,126,088			3,001,705			2,679,273

Gross sales		7,052,603			6,841,087			6,386,610
Sales adjustments		(631,722	)		(575,050	)		(530,415	)

Net sales	$	6,420,881		$	6,266,037		$	5,856,195


	December 31,
	2012			2011			2010
	(In thousands)
Long-Lived Assets
North American Region (b)	$	1,252,938		$	1,074,914		$	1,059,623
International Region		1,342,375			679,185			654,180

Consolidated total	$	2,595,313		$	1,754,099		$	1,713,803

(a)

Revenues for the North American Region include revenues attributable to the US of $3.61 billion, $3.58 billion, and $3.47 billion for 2012, 2011, and 2010, respectively.

(b)

Long-lived assets for the North American Region include long-lived assets attributable to the US of $1.25 billion, $1.05 billion, and $1.04 billion for 2012, 2011, and 2010, respectively.

Major Customers

Sales to Mattel’s three largest customers accounted for 37%, 38%, and 41% of worldwide consolidated net sales for 2012, 2011, and 2010, respectively, as follows:


	For the Year
	2012		2011		2010
	(In billions)
Wal-Mart	$	1.2	$	1.2	$	1.1
Toys “R” Us		0.7		0.7		0.8
Target		0.5		0.5		0.5

The North America segment sells products to each of Mattel’s three largest customers. The International segment sells products to Wal-Mart and Toys “R” Us. The American Girl segment sells its children’s publications to Wal-Mart and Target.