Operator: Good day ladies and gentlemen and welcome to the Mattel's Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.
I would now turn the call over to you host, Drew Vollero, please go ahead.
Drew Vollero - SVP, IR: Thank you, Stephanie. As you know, this morning we reported Mattel's 2013 second quarter financial results. We have 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 & Media section of our corporate website, corporate.mattel.com.
In a few minutes, Bryan Stockton, Mattel's Chairman and CEO; Tim Kilpin, Mattel's Executive Vice President of Global Brands; and Kevin Farr, Mattel's CFO will provide comments on the results and then the call will be opened for your questions.
Certain statements made during the call may include forward-looking statements relating to the future performance of our overall business, brands and product lines. These statements are based on currently available information and that is 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 described some of these uncertainties in the Risk Factors section of our 2012 Annual Report on Form 10-K, and our 2013 quarterly reports on Form 10-Q and in other filings we make with the SEC from time to time, as well as in other public statements. 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.
Bryan Stockton - Chairman and CEO: Thank you, Drew, and good day everyone. Before we get into a discussion on our result for the quarter, I'd like to take a moment to talk about the industry and Mattel in general as we exit the pre-season and head into the second half of the year, where we do about two-thirds of our business.
Overall the global toy industry came out of the first half of 2013 in pretty good shape. Industry trends looked consistent with recent history with toy category sales flat to slightly down in the U.S. and Western Europe and growing in Latin America, Eastern Europe and Asia.
For Mattel specifically, important emerging growth markets such as China, Russia and India continued to prove to be fertile ground as all grew by double digits in the second quarter.
According to NPD, when you include American Girl, Mattel gained total toy share in both the U.S. and the EURO 5. At the category level, according to NPD, dolls represent one of the fastest growing parts of the toy industry, growing 11% in the U.S. and 4% in Europe through May.
As the number one player in the doll category, Mattel is well-positioned with the top four brands globally including Barbie, American Girl, Monster High and Disney Princess. As NPD did reflects, we continue to grow our overall doll share as we successfully innovate and diversify our portfolio.
Now, turning to Mattel; as I mentioned earlier, we considered the first half of the year our pre-season and we tend not to read too much into the numbers. That said, overall our underlying performances consistent with our long-term financial goals for sales, gross margin, and EPS growth.
While there are number of puts and takes by brand and country, we finished the first half with revenues up 4%, gross margins up 150 basis points and EPS up 7%. Although ongoing strategic investments impacted the bottom line, we are already seeing strong returns from these investments in places like Russia, China, and American Girl stores. We expect these returns to continue into the second half of the year.
We strengthened our position at retail as our consistent focus on improving the supply chain generated another quarter of reduced retail inventories and we improved our line – promotional spending to support our second half initiatives.
Now, let’s focus on results for the second quarter. Five key themes remain consistent with our first quarter performance; our powerhouse Girls portfolio sustained international growth, strong gross margins and continued commitment to capital deployment and strategic investments for future growth.
Let me touch on each briefly. Our Girls portfolio continues to be the engine that's fueling our global growth. The portfolio drives approximately 40% of company revenues and they grew again 6% in the second quarter. In fact, this was the 15th consecutive quarter of growth for our Girls portfolio.
Monster High continues to exceed our expectations around the world with double-digit growth. and American Girl continues its successful brand acceleration.
The diversity and strength of this portfolio allowed us to grow share in the dollar category in both the U.S. and EURO 5 according to NPD when you include American Girl results.
Second, Mattel continues to grow internationally. We saw positive growth in Europe, Latin America and Asia in the quarter and for year-to-date. In fact, we have consistently delivered revenue growth internationally in nine of the past ten quarters.
Third, our gross margins remained strong, matching last year's record margin at 51.3% and are well-positioned within our near-term outlook.
Fourth, capital deployment remains an important piece of the Mattel story. In the second quarter, we paid $125 million in dividends and deployed another $119 million on share repurchases.
Finally, we continued our commitment to strategic investments and executing the right business decisions necessary for growth.
These incremental investments accounted for approximately one-third of the year-over-year increase in SG&A in the second quarter. As we invested in areas like new franchise development, American Girl retail stores, emerging market infrastructure and IT systems.
As a part of our how to grow roadmap we focused on building the right structure to support growth. As you know, in 2011 we created a new North America division to support better alignment with our customers.
In the second quarter, we continue to strengthen these customer alignment efforts as we further consolidated U.S. operations, bringing teams supporting the North America division together into our Southern California campus. This alignment effort contributed to the quarter's $8 million severance charge.
All-in-all, as I look at the second quarter, there were many similarities with the first quarter. I'm happy with our level of consistency in delivering overall sales growth, particularly with our growing Girl's portfolio and robust international growth, and I'm happy with our strong gross margins.
That said, as I look to where we were inconsistent in the second quarter. I see two primary areas that impacted our performance. The first area is our Polly Pocket brand. As we were to maximize the momentum in our growth portfolio, we made the decision to reallocate resources and executing more focused approach to the Polly brand.
That said, Polly continues to perform well in several markets. Going forward we will have a more focused program to support momentum in those markets. This resulted in a $14 million asset impairment charge in the quarter. Second, Barbie experienced declines both in North America and international. There are two key underlying factors that contributed to Barbie's second quarter results.
First, the shifting in North American promotional programs, traditionally executed in the first half to the second half; and second, increased competition from our own growing portfolio.
Let me comment on each. As I have mentioned before, we're committed to innovation in our Girls portfolio to generate incremental revenue and share of the global market. As we've also discussed before, we've introduced new franchises that have fueled significant category growth for the industry. The Barbie brand is likely being modestly impacted by their successes. However, it's important to recognize that while we've grown our overall share of the doll category in both the U.S. and EURO 5 year-to-date per NPD data, Barbie has also continued to hold her own, with revenues greater than 2010 when we launched Monster High.
You can see why we still feel pretty good about Barbie's performance in the context of the portfolio that she leads. For the year, Barbie's global POS and shipping are down mid-single digits. For the second quarter in North America, shipping is down more than POS. This was largely driven by a business decision to ship promotional programs and related shipping to coincide with consumer demand in the all-important back half of the year. This decision accounted for about half of the decline in North America for Barbie in the second quarter. We expect to recapture that volume later in the year.
Now let me turn my comments to the second half of 2013. As always, we know we have to execute well to deliver another successful year and we have three key priorities for the fall.
First, we have to maximize the momentum of our growing Girls portfolio. Second, we have to accelerate Fisher-Price POS globally. Third, we need to deliver strong execution on our promising fall line-up of products, content and retail programs. There is great news across the Girls portfolio. Looking at the back half of the year, we have new initiatives on every brand including Barbie, American Girl, Disney Princess and Monster High. As we've discussed, we have an entirely new franchise entering the market in the second half of the year with Ever After High.
We have a great calendar in the back half of the year for Barbie, where we expect to continue to grow viewership of our very successful Barbie; Life in the Dreamhouse animated series, which is planning to have its own Nickelodeon TV special in the fall along with the new lines of product. The fall will also see greater entertainment content for Barbie with two second half DVD releases and increase compared to last year and associated product lines.
Barbie continues to merge the latest trends with technology by focusing on innovation, customization and creative play across the toy line. Building on the success of last year's Barbie Photo Fashion Doll, we're very excited about the second half launch of Barbie's train and ride horse, which features gesture recognition software that reacts to Barbie's commands.
The new Barbie Digital Makeover product that transforms an iPad into a digital mirror for endless creative play with virtual make up. And the new Barbie Digital Dress Doll that features LED and touchscreen technology allowing girls to design and customize Barbie's fashions.
In anticipation of the packed calendar and consumer demand, our key retailers have also granted an increase in shelf space for our top four retailers for Barbie in the fall. As we look to the rest of our Girl's portfolio, 2013 is turning out to be a monster year, as we continued to deliver the unexpected and position Monster High as the top-of-mind brand with the older girl. The second half of the year will be our biggest yet with more dolls, franchise activation, digital engagement and our second major DVD tentpole event, 13 Wishes.
Disney Princess has an impressive calendar for the fall as well. There is strong retailer anticipation for Sofia The First, which is starting to ship now and Disney will also introduce another princess into their collection with the late fall launch of the theatrical release, Frozen. American Girl enters the back half of the year with tremendous momentum.
Girl of the Year, Saige, is tracking double digits ahead of last year's highly successful doll, McKenna. Clearly, a little marketing goes a long way in American Girl and we'll open our 16th store in Palo Alto, California, on the heels of our very successful opening in Columbus, Ohio, a few months ago. Of course we have our new franchise, Ever After High, which Tim will tell you about in a moment.
I hope you're starting to get a sense for why we're so focused on the importance of maximizing execution of our amazing Girl's portfolio. We have an impressive lineup for sure.
Shifting gears to Fisher-Price. We still see a big opportunity for us, particularly internationally. The second quarter was marginally better than the first quarter, but not where we wanted it to be. Clearly, this brand remains a work-in-progress. As we've said before, this is the year we plan to grow Fisher-Price and to do so we need to accelerate global POS. To achieve this growth, we expect several pieces to come together in the second half of the year. First, we'll have a full rollout of our new packaging, which will enable a consistent and impactful look on the shelf. Second, we'll have increased marketing programs that optimize our joy of learning campaign to not only connect with mom, but to more consistently convert mom. Third, we'll have expanded retail executions, for example, we've secured more shelf space with a major U.S. retailer on key BabyGear items than in prior years. Fourth, we'll have a strong product line rooted in innovation.
As I have said many times, when we innovate we grow and we have several new executions coming online in the fall, including an extended lap of (indiscernible) line, our co-branded and digital extension to Little People and Imaginext and a new BabyGear toddler feeding line.
In addition to the core business, Fisher-Price brands, which accounts for about one-third of the Fisher-Price band looks to continue to fire on all cylinders with an impressive second half line up. Specifically, we have three incremental property launches for the fall. First, the Nickelodeon property, Bubble Guppies is just beginning to ship. Second, Mike The Knight anchored in great traditional play patterns in swords, castles and dragons, is set to ship in the fall. Third, Thomas Wood, which launched in January has shown solid early results with the majority of shipping still ahead of us.
We are also seeing great traction around execution of the Thomas & Friends for our entertainment property King of the Railway. Lastly we must execute against our strong pipeline of new properties coming this fall. Our products based on Warner Brothers' Man of Steel and DreamWorks Animation's Turbo are meeting earlier expectations.
Disney's new property, Planes, looks very toyetic, and we're excited by the opportunities that will take off with this line. Our new Boys franchise Max Steel continues to get strong TV ratings around the world and we are just beginning the global rollout which will be supported with additional entertainment in the fall.
Of course, we're very excited about our new franchise in the Fashion Doll category, Ever After High, a powerful addition to our Girls portfolio that we believe reaches a segment of old Girls untapped by Monster High. This entirely new franchise introduces the next generation of fairy tale legends who are in power to choose their own story (fate). It will begin to rollout globally throughout the second half of this year.
Looking at the Company in aggregate, we ended our pre-season consistent with our long-term financial goals for sales, gross margin and EPS growth. We continue manage our business for the long-term and not quarter-to-quarter. We'll continue to invest and make the right business decisions to deliver more consistent growth and superior results to our stockholders in 2013 and beyond.
Now, I would like to introduce Tim Kilpin, Executive Vice President at Mattel Global Brands Team, to give you a little more insight into Ever After High. Tim?
Tim Kilpin - EVP, Global Brands: Thank you, Bryan. Good morning. As we go through this, I will call out the slide numbers from the presentation that was posted this morning and we'll start on Slide 2.
As Bryan mentioned, we manage the portfolio of Girls Brand and to do that we recognize that Girls play differently as they grow. Their interests are different, the way they interact with content is different and the types of activities they engage in are different.
So on Slide 3, we have built a portfolio of brands that speaks to those differences. Barbie speaks to the aspirational roles that we know Girls like to play out; while Disney Princess allows Girls to play out the magic of Disney's classic fairytales. We are very proud of the decade of partnership we've enjoyed with Disney as they've grown this to be a top girl's global franchise. We are incredibly pleased with how well Monster High has performed since we launched it in 2010, speaking to an older girl to a great story and a relevant message.
American Girl played a critical and differentiated role in the portfolio, celebrating Girls by delivering on friendship and imaginative play and storytelling. We take great care to ensure that the brands in our portfolio are complementary in terms of positioning, play pattern, emotional benefit, and target age; and as a result, we have grown the category and we have grown our share.
On Slide 4; what continues to drive us to look for new opportunities in this space? Because we know that as Girls grow, they're always looking forward to what's new and what's next. As I said, we know the different Girls are motivated by different themes and stories. So our ongoing objective is pretty clear, how do we continue to reach tween Girls with relevant new themes.
Slide 5; we learned a lot from what worked on Monster High.
On Slide 6, you can see, we created a world of wonderful characters, we told great stories. We used multiple marketing platforms to get the message across, we built a broad range of merchandise to drive the franchise. We created a deep engagement with Monster High fans and it's their passion that continues to drive our sales today.
Slide 7, you'll see we plan to continue to drive growth in Monster High; in fact, to great new programs in 2013 like the Trip to Scaris this Spring, and the upcoming 13 Wishes DVD and retail program this Fall. Monster High is a $1 billion franchise in worldwide retail sales and it is still growing all around the world.
Slide 8, its success continues to be anchored in that initial insight about feeling like a freak in high school. Monster High resonates because it speaks to that simple truth about celebrating new differences and about self-acceptance.
On Slide 9 what would that insight be that could drive our next tween Girls opportunity, what could we apply that would be unique from and ultimately incremental to Monster High.
Slide 10, we know the Girls of this age want to be empowered, that they want to make their own choices about their friends, their interest, their hobbies, their lives. That insight let us to our next girl’s franchise Ever After High. I’ll explain in a minute how we’re bringing that insight to life.
On Slide 12, you will see our pop culture inspiration came from everything that's around us today about fairytale. Film, TV and fashion we began seeing new twists on the classic form. These were not traditional younger girl approaches, but something more sophisticated.
On Slide 13, we married that inspiration to what our insights told us was a really powerful universal truth. The story of your life begins when you make it your own. You are empowered to choose your own destiny.
Slide 14, our target audience is an older girl. She’s outgrown traditional fairytales, but she likes humor, she likes a twist in the familiar and she loves pretending to be a teenager in high school.
Slide 15 that let us to our story and I won't take you through the whole thing, but if you wanted to understand this much, Ever After High is a boarding school where the children of fairytale legends learn to be lived their parent’s destinies, where they want to or not. The endings are already written, everything is in stone, until one day Raven, daughter of the Evil Queen rejected her legacy. She is one of the evil her revalues have made anything possible.
So we set up the world of royals and rebels. Royals want their happy endings, just like it was planned, rebels want to rewrite their destiny.
So on Slide 16 you will see the central characters Raven Queen and Apple White, they head up to royals and repels, and not exactly rivals but they do see their world definitely and of course, their (RoomMates).
On Slide 17, the beauty of creating a world like this is its extendibility. We learned from Monster High that Girls didn't just want to own one or two characters, they wanted them all. So far, we've created dolls of nearly 40 Monster High characters, and Ever After High will be no different. Here, just some of the initial characters like Cerise Hood, daughter of Red Riding Hood; and Blondie Locks, daughter of Goldilocks.
Slide 18; we were really encouraged by our initial research, which told us that Girls see these characters as different from Monster High. In fact, Girls that didn't like Monster High theme & aesthetics really loved this concept.
On Slide 19, as we learned from Monster High and as we're now applying with Max Steel, Ever After High will be supported by a full franchise plan.
On Slide 20, you can see the Ever After High Facebook page and YouTube channel page. We launched these about three weeks ago and really haven't done anything yet to drive traffic to these locations. We're just getting them up and running. That said, we've already had over 1 million views of the content and product reviews.
Slide 21, as we've talked before about that two-way dialogue with fans on Monster High, we're already seeing that happen on Ever After High. What you see on this current slide here is fan generated art work and videos that have already been posted online after only three weeks. We've never seen anything like this kind of early engagement with the brand.
Slide 22, as we did with Monster High, we're starting out by telling a lot of stories (to each) girl in the world. For Ever After High, we're launching at 110 minutes of animated content this fall, over a dozen webisodes throughout the season and a TV special that will air around the world later this fall.
Slide 23, as you may recall, Monster High, we kicked up with a book series that reached The New York Times Young Adult Best Seller List. For Ever After High, we're excited to be launching this fall with a series of books by Newbery award-winning author, Shannon Hale. These books will be available both digitally and in print.
Slide 24; also as part of the marketing launch, we will be premiering a live-action music video later this fall with the unique twist that's a great fit with the franchise's theme. There will be more to come on the video later, but in the meantime you can go to our website and hear the theme song.
Slide 25; from a toy standpoint, we will launch with a focus range of fashion dolls this fall, starting of course with our lead characters.
Slide 26; you'll see we've got a strong program of consumer products for this year, including apparel, accessories, jewelry, stationary and electronics.
Slide 27; in terms of how it's all coming together at retail, we're just now facing Ever After High as an exclusive retail program in the U.S. with Justice stores. Justice will be the first to get not only fashion dolls but back-to-school merchandise and accessories as well. Later this fall, we will make Ever After High available through all of our regular channels.
Slide 28; we'll also begin to rollout Ever After High globally this fall, starting in 1,400 countries this year and following with the rest of the world in 2014.
So Slide 29; we're going to have a lot more to share in Ever After High in the months ahead, but in the meantime you can see the original webisodes and start to immerse yourselves in the world by going to our website, our Facebook page or our YouTube channel.
So on Slide 30; now you can see how Ever After High fits into the portfolio and how it's differentiated. We know that innovation and deep consumer engagement can grow the doll category and we look forward the future franchise launches to continue to drive that growth.
Thank you. Now, I will turn it over to Kevin Farr.
Kevin Farr - CFO: Thank you, Tim and good day every one. As Bryan mentioned, we continue our focus on growing the business profitably. I believe our second quarter and first half results demonstrate our continuing commitment to effectively manage our global portfolio brands, countries and customers. For the quarter, global revenues are up 1% and we ended the first half with revenue up 4%.
Our second quarter gross margin equaled our strong margin last year of 51.3%. Gross margin for the first half is up 150 basis points. While our ongoing strategic investments impacted the bottom line, operating profit was flat year-to-date including a 9% impact from the Polly Pocket asset impairment charge.
Overall, our results were consistent with our expectations and with some of those strategic investments coming online in the second half, we're off to a good start to deliver another solid year for our shareholders. Our results also demonstrate our continuing commitment to deploy capital back to our shareholders.
We paid a quarterly dividend of $0.36 per share reflecting an annual dividend by $1.44, a 16% increase over last year. We repurchased about 2.7 million shares of our stock in the quarter. Solid sales and gross margins give us the opportunity to reinvest in our business. One of our key strategies to grow is to develop new franchises.
Franchises are great investments for Mattel because we can research, refine, and roll out new brands quickly and efficiently as we leverage our existing talent and infrastructure to launch them globally. Relative to other industries, new franchises like Monster High, Max Steel and Ever After High only take a few years to incubate and bring to market and it represents small investments of $10 million to $20 million.
In the case of Monster High, the payback has been extraordinary as we leverage that concept into a global brand that exceeds a $1 billion at retail. While not everything could be a Monster High, we're confident that these singles and doubles with our new franchises will drive strong returns.
Now before I start reviewing the slide deck with you, I did want to highlight a couple of key items in the P&L. As I said earlier, our gross margin for the quarter was 51.3%, which is consistent with our goal of delivering gross margins in the low to mid 50% range. For the quarter favorable mix, O.E. 3.0 savings, and our pricing actions were partially offset by increased input costs, the unfavorable impact of foreign exchange and higher royalties. Unfortunately, (recently) there has been volatility in crude oil prices and foreign exchange. That said, we managed a basket of cost including input costs where there is always puts and takes. We continue to focus on executing manufacturing efficiency programs to fully or partially offset these puts and takes and as we begin to enter our peak production, so far our overall basket of cost, including foreign exchange has been fairly consistent with our cost assumptions.
In regard to SG&A, excluding the $14 million impact of the Polly impairment charge, our spending is on plan and consistent with the outlook we gave you on the first quarter call. If you recall, we suggested that the first quarter year-over-year increase of $23 million was a good run rate to estimate our SG&A expenses in the near-term.
Second quarter SG&A expense was up about $41 million, with about a third of the incremental expense due to the Polly impairment charge, another third of the incremental expense is due to our continued investment in strategic growth initiatives, and the final one-third due to higher employee related cost including merit increases, higher benefit expenses and severance. For the full year, we continue to plan SG&A expenses to be higher than last year. That said, we continue to see that the quality of our overall SG&A expenses continue to improve as we shift spending to future drivers of growth.
With respect to the impairment charge for Polly, as Bryan said given the strong growth in our overall Girls portfolio and Polly's recent performance, we've made the strategic decision to execute a more focused approach to Polly going forward. Our plan is to reallocate resource to other core brands in our (doll) portfolio. As a result the reduction in expectations for future Polly Pocket revenues and profits triggered a $14 million non-cash impairment charge in the quarter. Going forward, amortization expenses for the remaining asset are expected to be immaterial to Mattel's results.
Overall, I am pleased with how we manage the first half, but with that said, there is plenty of work to be done as we focus on executing in the all-important second half of the year.
Now, let's turn to the slide deck. Starting on Page 4, you can see that our worldwide Girls sales are up 1% for the quarter and 4% year-to-date. Continued strength in our international region, which was up 4% in the quarter offset performance in the North American region which was down 2%. Our Girls portfolio led by Monster High and American Girl along with strong results and Fisher-Price brands helped drive the growth and we grew share in the U.S. and EURO 5 and global shipping and POS remain in balance.
Turning to the Page 5 of the presentation, you can see the brand perspective of sales. Worldwide sales from Mattel Girls and Boys brands were up 1% for the quarter and 6% year-to-date. Growth in our Girls portfolio was driven by Monster High which was partially offset by declines in Barbie. As Bryan mentioned Barbie sales were down for two reasons, first, is shifting of North American promotional programs for the second half and second, some increased competition from the success of our own growing Girls portfolio.
Hot Wheels was down 1% with Girls internationally and strong results coming die-cast line. Our Entertainment Properties including Warner Bros. Man of Steel, the initial shipments of Disney's Planes and Dreamworks' Turbo, helped to offset a strong Batman in comparison to last year.
Max Steel is just starting to ship around the globe with early results in the home market of Latin America are encouraging. Worldwide sales for Fisher-price brands were down 3% in the quarter and down 5% year-to-date. The lower sales were primarily the result of declines in some of our Fisher-priced core brands, partially offset by strong performance of Fisher-Price brands including our new Thomas Wood line and the initial shipments of our Mike the Knight brand.
American Girl had another great quarter with 14% growth in sales.
On Page 6 we highlight the performance of our North American region. Overall, sales for the region were down 2% in the quarter and up 2% year-to-date. For the quarter, strengths in our Girls portfolio driven by Monster High and American Girl and our Fisher-Price brand business was offset by softness in Barbie and Fisher-Price Core.
Our international business seen in Page 7, grew 4% this quarter and 6% year-to-date. For the quarter, all of our regions grew in both U.S. dollars and local currency. We continue to see strong results in our emerging markets in China, India, Russia and Eastern Europe as well as Mexico and Brazil grew for the quarter.
Now, let's review the P&L starting on Page 8 of the slide presentation. I have already talked to you about gross margin performance for the second quarter. Year-to-date, the first half gross margin of 52.7% is up 150 basis points over last year, consistent with our goal of delivering gross margins in the low to mid 50% range over the near term.
With respect to SG&A expenses seen on Page 9, I have already covered the details of the driver of increased expense in the second quarter. For the quarter, SG&A expenses as a percentage of net sales was 33.5%, including a 120 basis point increase related to the impairment charge.
Page 10 of the presentation summarize the Company performance of companywide cost savings initiatives and our continuing efforts on our ongoing operational excellence 3.0 program. For the quarter, we delivered incremental O.E. 3.0 gross savings of $9 million and we’re on track to deliver our full year target of around $50 million in gross savings.
Turning to Page 11, operating income in the first quarter was $95 million or 8.1% in net sales, down 320 basis points compared with last year’s second quarter. The decrease in operating income was driven by higher SG&A expenses including the $14 million impairment charge, partially offset by slightly higher sales and flat gross margins.
Turning to Page 12; earnings per share for the quarter were $0.21, a decrease of $0.07 compared to the prior year’s second quarter. The decrease in EPS was driven by lower operating income and increase in share count partially offset by lower non-operating expenses and a favorable tax rate driven by the benefit of discrete period tax items.
The impact of foreign exchange in the quarter was a negative $0.03 per share. For the second quarter, our worldwide effective tax rate reflects discrete period tax benefits related to the reassessment of previously recruit taxes based on the current status of foreign and state audits and enacted law changes. We currently expect a worldwide effective tax rate for the year to be 22%.
Slide 13 outlines the HIT integration and amortization costs Mattel incurred in 2012 and the first half of 2013. For the quarter, integration expenses were $1 million flat compared to the second quarter of 2012. For the full year, we expect these expenses to be about $10 million compared to $24 million in 2012.
We discuss cash flow on Page 14. Year-to-date, cash flow used for operations was $286 million compared to $62 million last year. The increase was primarily due to higher working capital usage, partially offset by higher net income. Cash used for investing is significantly lower than last year, when we acquired HIT Entertainment for $685 million.
Capital expenditures are up slightly to $115 million. We repurchased 2.9 million shares of stock year-to-date at a total cost of $127 million. We continue to pay our quarterly dividend of $0.36 per share at a total cost year-to-date of $249 million. As a result, our balance sheet remains strong.
Our cash on hand at the end of the period was $823 million, up $451 million from the prior year. Our debt to total capital ratio was 36.7%, down from 38.1% in the prior year.
Today, we announced our third quarter dividend of $0.36 per share, a 16% increase to the prior year. We also announced that we increased our share repurchase authorization by $500 million. We remain committed to our capital deployment strategy and expect to end the year with cash and debt levels consistent with our framework.
As you know, effective capital deployment is critical to achieving top third to top quartile total shareholder returns. Starting this quarter, we also enhanced our level of disclosure in our 10-Q and 10-K filings for consolidated and segment revenues. You will find schedules that outline these enhancements, including the quarterly schedules provided this morning. We have also posted these schedules on our corporate website in the Investor section, under the subheading, Financial Information.
In summary, excluding the impairment charge, our underlying performance in the first half of the year is consistent with our long-term financial goals for sales and operating profits. As we look ahead, we remain keenly focused on growing our business consistently, growing it profitability and deploying the cash generated in value enhancing ways to reward our shareholders.
This concludes my review of the financial results. Now, we'd like to open the call to questions. Operator?
Operator: Sean McGowan, Needham & Company.
Sean McGowan - Needham & Company: I have a couple of questions if I can. Bryan, remind me some what you've said in the past about the extent to which Barbie is affected by the success of some other growth products? My impression was that, up until now you've thought that it really wasn't affected. Are you seeing something changing there?
Bryan Stockton - Chairman and CEO: Good day, Sean. Not really, what we've said in the past for Barbie is, it's very difficult to estimate the impact of other brands on the Barbie brand simply because the base year which is 2010, Barbie revenues through the first half of this year are still higher than that base year. So it's very difficult to estimate if you want to call it cannibalization, it's hard to do. We've said it's highly likely that that's going on. We've never said it's not going on, it just difficult to give an exact number. What we believe is, likely occurring in the second quarter is for the first time in Monster High history, we've been able to actually keep up with consumer demand, the shelves are full for the first time. We worked very hard in our operations to ramp up our production as quickly as we can. Monster High continues to grow at extraordinary double-digit rates globally, engagement by growth continues to grow, in fact we've had a 12% increase in the unique visitors to our websites. So there is a lot of momentum there and so what we believe we're seeing is maybe a little bit more impact. But we go back to – if you'll look at Barbie's performance in the context of the overall portfolio, she is doing quite well relative to competition. Her revenues are still stronger than 2010 and we think we have a very strong second half for Barbie. So I think we're being consistent. We may be seeing a little bit more impact in the second quarter, but we're certainly not troubled.
Sean McGowan - Needham & Company: Could you comment generally about what you're seeing in point-of-sale for your products across the retail channels relative to your shipment?
Bryan Stockton - Chairman and CEO: Sure. We worked really hard to try to balance out POS in shipments and inventory and I would tell you that, generally as you look across the brands and countries, we're pretty aligned. POS is down sort of low-single-digit and inventories are down sort of low-single-digit. So we're feeling pretty good about where we are at the moment. I think what's really important is because we worked so hard on retail inventories and frankly getting our all inventory staged for all these second half initiatives, we think we're in pretty good shape. The reason that's important, if you think about what's ahead of us in the second half from an entertainment standpoint, we have Planes, Sofia, Frozen, Turbo, Man of Steel DVD. We've got from our own IP, the new Thomas Property and Thomas Wood, Ever After High, Monster High and Max Steel. There's a lot of new stuff that we're trying to get ready for and so as you look at our inventories at Mattel, they are up slightly as we do a little building in anticipation of that.
Sean McGowan - Needham & Company: Last question then. Was there a meaningful revenue in the second quarter from Max Steel and Superman?
Bryan Stockton - Chairman and CEO: Well, Superman, obviously we were pleased with the results of Superman in the first half, there would be more action and activity on Superman for the DVD in the second half, but nothing of any consequence. For Max Steel, we began shipping to some degree in Latin America, where, as you recall, that's a $100 million retail base business. We are encouraged by the shipment and POS response we are seeing. The new content has been in Latin America for the year, so we are excited about what the potential maybe for Max Steel, but I would tell, it's still early.
Kevin Farr - CFO: I think, Sean, as I've mentioned, when we looked at our shipping for the quarter, more or less Warner Brothers' Man of Steel, initial shipments of Plane and DreamWorks' Turbo help to offset the strong Batman comparison in last year.
Sean McGowan - Needham & Company: But Bryan's comments there, do you think you are basically done with Superman or there could be more in the second half?
Bryan Stockton - Chairman and CEO: Well, there is going to be, I would say, the typical kind of second half support for a DVD launch and that's important to Warner Brothers' and it's important to us, so we are going to make sure we support it fully.
Kevin Farr - CFO: I think Superman overall as we look at it today is pretty consistent with our expectations.
Sean McGowan - Needham & Company: Lot of Turbo adds on (indiscernible) last night, so it's okay we are…
Bryan Stockton - Chairman and CEO: It opens (indiscernible) and expect to see you there.
Kevin Farr - CFO: …and buy some toys.
Operator: Steph Wissink, Piper Jaffray.
Stephanie Wissink - Piper Jaffray: Just a couple of questions. The first one, Bryan, if you could just share with us a little bit on your philosophy on the share repurchase program. Should we think about that as clearly offsetting dilution or more of a dilution plus type of an event?
Bryan Stockton - Chairman and CEO: Sure, Steph. Well, first I want to welcome you to Mattel. We are thrilled to have you on the team, so good morning and welcome. As we think about share repurchase, we immediately think about it in terms of our overall capital deployment strategy and as we think about that capital deployment strategy there is a number of things that we try to do and if I think specifically in share repurchase we really think about how we want to invest. We can buy another company as we did with HIT. We can reinvest on our own company as we tend to do on an ongoing basis. I would say that our share repurchase strategy in general tends to be opportunistic. We have very disciplined approach in terms of how we think about, how and when and why to buy the shares. We like it a lot. We think it served us well over the years. Kevin, you might want to add a little more color.
Kevin Farr - CFO: I think we've got a capital investment framework that we followed from last decade and really from the perspective of our capital investment framework; first we try to invest in the business. Initially we expect to invest to about $220 million to $230 million in CapEx. Next priority is to have a top quartile dividend and as I indicated (that we'll pay) – we're going to pay a dividend of $0.36 per share. It's up $0.16 versus last year and when you look at to the top quartile from the perspective of both dividend yields and payout ratios. Next, we look at really share repurchases, or M&A and we're very disciplined and opportunistic about share repurchases, just like we are about M&A.
Stephanie Wissink - Piper Jaffray: Just one more for us, guys you mentioned the investment spend in the second quarter, can you just us some sense of where you think you are and that maybe investment spending horizon curve and how we should think about the monetization of some of those activities in the second quarter and into the second half?
Kevin Farr - CFO: I'd be happy to. Our approach to strategic growth investments is disciplined and case by case. We manage strategic investments in the context of the annual basis, and we do that in delivering operating profit growth of 6% to 8% for the full year, consistent with delivering top third to top quartile TSR. So far we have had a really good betting average on our investments over the last couple of years as many of them are already paying off including the three new American Girl stores we opened last year are in St. Louis,, Houston, Miami, as well as the recently very successful opening of a new store in Columbus. The development launched new franchise like Max Steel, Ever After High, and infrastructure and headcount in emerging markets including China, India, Russia and Eastern Europe. We're also making strategic IT investments in things like product lifecycle management. The implementation of this system has gone live and it is also important – was an important consideration as we raised our outlook and gross margins with mid-50s range from over the near term. In the future, we will share more of the details of our strategic growth investments. We are continually focused on delivering more consistent growth. That said, as we look at strategic investments made over the last couple of years, we made about $30 million last year. In the first half about a third of our $64 million increase in strategic investments are – are strategic investments. As you look forward, I think the information that we've provided you on the call about a run rate for future quarters was about 23%. It is still relevant as you look at the balance of the year.
Operator: Drew Crum, Stifel Nicolaus & Co.
Drew Crum - Stifel Nicolaus & Co.: Bryan, just wanted to get your thoughts on Fisher-Price. Are your expectations for it to still grow in 2013, you need Core to grow in order to grow Fisher-Price overall? What is the impact of gross margin, I think, going into the second quarter you guys suggested that gross margin would moderate with – I guess the gross margin would moderate as we made our ways through the year as Fisher-Price saw an uptick in growth. So I just want to get an update there?
Bryan Stockton - Chairman and CEO: Sure. Let me start with Fisher-Price. We have been working very hard, as you know, on trying to get that brand repositioned with moms and specifically to connect with moms. We’ve done a lot of work on the brand positioning and how to connect primarily through digital. We’ve also spent a lot of time working on the execution of that at retail, both with new packaging that you’re seeing rolling up and with more, I’d say more robust retail positioning. We’re, I would say, slightly pleased that Fisher-Price seems to be making a bit of a churn in the second quarter, and we certainly are not declaring victory on Fisher-Price, but I think as you look at the second half and I think we’ve been consistent with this, it's really a second half opportunity as the new packaging comes in, as consumers get more experience with the website, as we get our retail programs better executed, as we really get the digital and brand positioning to evolve from just connecting to converting with mom. There is an awful lot of new product innovation in the Fisher-Price Core. So to answer your question, yes, we need to have the Core pickup from POS globally and that's important to us. The other part of Fisher-Price that we also want to think about is the Fisher-Price Friends portfolio. As you know, that's a really important part of Fisher-Price. It's about a third of the overall Fisher-Price portfolio. So we spend a lot time thinking about it. Since we made the investment in HIT Entertainment, we spend even more time thinking about it. As you’ll recall now, about half of our portfolio is our own intellectual property. So when we think about the exciting things happening with that, including -- I talked about Thomas Wooden and King of the Railway, a movie that's coming out, Bubble Guppies, Mike the Knight, and continued strength at Jake & the Never Land Pirates. We think we're going to see continued momentum on Friends, but we are expecting to see some improvements in Fisher-Price Core. So now as that relates to gross margin, we've been pretty consistent that Fisher-Price gross margins are very attractive relative to competition and then from pre-school. Structurally that market's a little bit lower than the other segments like fashion dolls, for example, so we may see some impact. Kevin, you may want to make your comment on that.
Kevin Farr - CFO: Yeah, I think our execution in the middle of the P&L remains solid. We're pleased to see our gross margin expand 150 basis points to 52.7% in the first half of the year. Our outlook hasn't changed for full year gross margins. Our goal is to deliver gross margins in the low to mid-50s range over the near term.
Drew Crum - Stifel Nicolaus & Co.: Then moving on to Ever After High, can you talk about your plans for placement at retail? Is there any risk that you cannibalize against some of your other properties? Plans to grow the fashion doll category, or are you going to take share from competitors or yourself?
Bryan Stockton - Chairman and CEO: I'm going to ask Tim to comment on this in just a minute, but I think one of the things that is really important is we spent a lot of time over the past few years really thinking hard about how to manage this overall Girls portfolio and when you think how we've been able to consistently grow this for 15 quarters, across a portfolio that includes Disney Princess and Barbie at the younger age, and Monster High, American Girl at the older age and now with Ever After High, I think one of the most important things that Tim talked about in his presentation was really this white space that they discovered, because Ever After High is really about Girl empowerments of rewrite your story the way that you want your life to come out. That's a different Girl, it's a different positioning than Monster High which is all about celebrating your differences. So that's one of the things we worked very hard across the portfolio just to make sure that each brand has a unique positioning and reason for being. Tim, do you want to comment a little bit about the issue of how you think this will play out at retail.
Tim Kilpin - EVP, Global Brands: Yes, sure. Couple of things; first of all, as I mentioned earlier, we are in Justice stores now and one of the reasons we started there was because there was a great opportunity for us to showcase the franchise across the multiple categories of product. So toys and consumer products, you can really help kind of tell the larger story in one place at one time. That said, we are rolling out to all of our regular channels throughout the course of the rest of this year, both here in the U.S. and around some key countries internationally and we're very pleased about the retail support we've gotten and everybody recognizes to Bryan's point. How this fits into the portfolio, how it's differentiated versus the rest of the portfolio, and its reason for being on the shelf. So we've got very good support, great promotional plans lined up with all of our major accounts.
Kevin Farr - CFO: I think our overarching strategy really is to innovate in the category and grow the category and as Bryan said earlier, we've got top four brands in the category with Barbie, with American Girl, Monster High and Disney's Princesses. So from a outlook perspective, we want to continue to innovate and yeah we are competing against ourselves, but we want to grow the category and overall grow our sales.
Operator: Michael Kelter, Goldman Sachs.
Ivan - Goldman Sachs: This is Ivan sitting in for Michael. I was hoping to dig in little bit deeper on gross margins. It looks like they were flat in the quarter year-over-year. It's first quarter in a couple that they didn't expand. We're just trying to understand, is there anything in the quarter that makes you think that this was just a temporary pause beyond just kind of the cadence for shipping or is kind of flat to – flat, the correct way to think about March through the balance of the year? As we look at the drivers that you've broken out, some of them were exogenous in terms of growing margins, maybe currency, et cetera. But where you see the lowest hanging fruit in order to be able to expand margins over the balance of the year?
Kevin Farr - CFO: I think, just from a -- to step back a little bit, I think second quarter gross margin of 51.3% was consistent with our expectations and we don't manage our business to grow gross margins sequentially every quarter. Rather, we manage gross margins on an annual basis to achieve gross margin within their low to mid 50s range over the near term. There was some impact of ForEx this year on gross margins, but as we look to the future, really I think our performance is consistent with our goal of delivering gross margins in the low-to-mid 50s range.
Ivan - Goldman Sachs: But just as a follow-up, I noticed the product mix seem to be a little bit of a benefit to gross margins in 2Q. Is there anything in the way that order books are forming up for the third and fourth quarter, where you think you might be able to see another benefit from product mix? Or is that something that you expect to be net neutral over the balance of the year?
Kevin Farr - CFO: Yeah, there is a lot of moving pieces, but I think product mix has been a tailwind for a while with the growth of our doll portfolio. As Bryan said, it's growing for 15 consecutive quarters.
Operator: Gerrick Johnson, BMO Capital.
Gerrick Johnson - BMO Capital: Bryan, can you talk about the Barbie promotions you were talking about earlier? What it precisely shifted? Then within Barbie, any comments on certain areas of Barbie that might be performing better perhaps core dollars versus accessories vice versa?
Bryan Stockton - Chairman and CEO: Sure, well, I think the first thing we have to realize is, a number of things are moving around at retail as retailers' strategies evolve, you can imagine that – and this is frankly a global phenomenon. As you look at what's going on with Layaway for example, things are shifting around as retailers try to figure out how they can differentiate themselves and then so as a result what we've tried to do is, we've tried better align our spending with both our second half initiatives and where retailers are headed. So I think one of the things that's really great about our North American division is, they've worked very hard on supply chain. They are now working hard on how do we optimize our promotional spending with our retail partners. As a result, they decided, along with our customers, that we frankly should shift some spending out of the first half and into the second simply because there's so much activity across the portfolio. As I mentioned on Barbie, we got some very strong products, Barbie; Life in the Dreamhouse. So I would say it was a joint decision between us and our customers to, as I would say, not only fish where the fish are, but to fish when the fish are feeding and that's in the second half and really around the Layaway time period and the holiday spending. So I think you'd see that across our promotional spending, not just retail spending, but also our consumer spending as we try to support these programs. As it relates to Barbie, really what continues to do well is our core fashion segments and accessories and we think that should carry through the fall and we are very excited in the fall about Barbie's new Dreamhouse, because it's really innovative, it's got two elevators in it that will really love it give us positive feedback. So it's really the core fashion segment and that's good for Barbie.
Gerrick Johnson - BMO Capital: And Max, you said early returns in Latin America were promising. I have seen a sneak out on the shelves here in the U.S. Can you talk about how it’s – how the early performance is here and elsewhere?
Bryan Stockton - Chairman and CEO: Well it’s really way too early. Latin America has 10 years of history with Max and a lot of momentum of Max. So, it doesn’t surprise us if we are seeing some positive impact there and the reason I say that is, as we develop this property, we spend a lot of time with boys in Latin America, because that was really the core of the franchise and the story playing well not only in Latin America, but in North America and Europe and Asia. So, we’re pleased with what we’re seeing in Latin America is way too early on shipments or POS, but what we do know is that the TV ratings are very, very solid, we like it, our TV partners like it. Usually if boys are watching it, they begin to pick-up on the characters and the play pattern. So we’re feeling positive, but way too early to make a call.
Gerrick Johnson - BMO Capital: And one last one if I can sneak in there. Kevin, could you talk about the tax rate and forgive me if I missed this. But why was that especially low this quarter?
Kevin Farr - CFO: Related to a reassessment of routine state and tax audits of previously accrued taxes and as a result of our reassessment of those audits, we had a discrete tax benefit that we recognized in the quarter. That said, when you look at the full year rate, we expect the full year rate to be around 22%.
Gerrick Johnson - BMO Capital: Full year rate to be around 22% including the low 6.9% in this quarter?
Kevin Farr - CFO: That’s correct.
Operator: Eric Handler, MKM Partners LLC.
Eric Handler - MKM Partners LLC: Actually two questions for you, first on Ever After High, you are going after Girls, the teens, the 9 to 13. You said it’s maybe you get a little bit of cannibalization of your existing products, but typically the Girls nine to 13, what are they playing with? What type of products are you competing with outside of your own girl dolls? Then secondly, just a follow-up to a prior question. You are looking – if you look at your O.E. 3.0 plan, you are looking at $50 million run rate for the full year. You have already done $14 million. So you're looking at $36 million in gross savings in the back half of the year. The severance in investments has sort of negated those gross savings and your net savings has been pretty de minimis for the first half of the year. Will severance in investments subside so that you can actually get some leverage in the back half of the year for those gross savings?
Bryan Stockton - Chairman and CEO: Let me start. I am going to ask Tim to amplify what I talked about, then we'll ask Kevin to address the O.E. 3.0 question. Now, we are excited about Ever After High again because it's in a what we believe is a unique white space for this older girl segment that Monster High has not yet tapped. As we build these brands and we saw this with Monster High and we are trying to replicate that the Max Steel and again with Ever After High, we are really creating a franchise. It's not a doll, it is not play thing, it's truly a franchise. It's an attitude. It's apparel. It's whole bunch of things. So we are going to be, I think, well-positioned. Tim, would like to amplify on that?
Tim Kilpin - EVP, Global Brands: Yeah, I think that is an important thing to understand is that both of Monster High as we've seen it in Mattel, we expected Ever After High that Girls are interacting with this brand, not just with dolls, but with apparel and accessories and stationery and publishing and electronic. That – given one of the strength of Monster High, we expect to replicate that. In things in publish, you can (access ways) to tell a story, but ways to monetize the brand as well.
Kevin Farr - CFO: Yes, I think finally on O.E. 3.0 yes, we have made some investments in the first half of the year and generally those investments have big paybacks quite quickly. So when you look at it for the balance of the year, I think you will see with regard to the $36 million of gross savings that those will flow through and as you know you, we use gross savings to more or less fund our strategic growth investments.
Eric Handler - MKM Partners LLC: Then just one quick follow-up, when you look with regards to Ever After High franchise, when you look at Monster High and you look at the $1 billion plus of revenues that's generated each year, how much of that is toys? How much is apparel? How much is – however you want to slice up the pie, how does that get divided up?
Bryan Stockton - Chairman and CEO: It's such a solid franchise and it's like Barbie there is a substantial portion of that that is consumer products. Toys is still the majority of what consumers are spending money on, but there is a substantial consumer products business and that's why we always focus on it's a franchise, it's not just a toy brand.
Operator: Timothy Conder, Wells Fargo Securities.
Timothy Conder - Wells Fargo Securities: A couple of questions here, gentlemen. Bryan, you mentioned a couple of times in your preamble that your share year-to-date had grown in the U.S. and EURO 5, when you include American Girl, if you exclude American Girl, can you give us any color on your share? Number one. Then second question, Kevin, just to clarify then ask, I think, in a couple of different ways, but the $23 million year-over-year increase in the operating and other expenses there that you gave in the first quarter call. This year, if you back out the impairment, it was about $27 million. From the last question, again, the previous, it sounds like maybe the timing, whether that was severance or whatever, that's been a little front-end loaded. That for the year, that quarterly $23 million, year-over-year quarterly run rate is still pretty fair, just to confirm that or if you could just give some more color, please?
Kevin Farr - CFO: You want me to cover that, first? I think, yeah, you have it right. If you look at the quarter, the second quarter, you take out the $14 million impairment charge, you get $27 million and severance was up around $5 million in the quarter. So that run rate was – in the second quarter is very consistent with the guidance we gave you. In the first quarter, and I think as you look forward to the balance of the year, I would still use that guidance in the third and fourth quarter against 2012 adjusted SG&A.
Bryan Stockton - Chairman and CEO: As it relates to our market share, the way that we think about it is we always think about our category share, including American Girl. It's really for two reasons; number one, it's a $600 million plus brand that is one of the top brands in the world and one of the top brands in the country. So we always think about our category share with that in there. Secondly, there is frankly, a technical reason to do it. Historically, NPD, when they used their diary panel, covered American Girl, and that was always a part of the share calculation. Now that NPD is using POS data from retailers, American Girl is not included in their coverage, so we have to make an adjustment to come up with a realistic estimate of our share. By the way, we always get confirmation with NPD that the statement that we're making is factually correct. So we have to adjust it because it's such a big and important part of our portfolio.
Kevin Farr - CFO: Tim, did you have a follow-up question to my answer.
Timothy Conder - Wells Fargo Securities: Yes. Well, thank you Kevin and Bryan for both of those, but are you implying, Kevin, on the question for you that the severance will likely be lower than what we've seen in the first half for the year that will likely be lower in the second half for the year?
Kevin Farr - CFO: Again we look at O.E. 3.0 opportunities on a case-by-case base is too and we would have the flexibility that we've had another good idea which would generate a quick payback. We will do it. But I think a good part of these savings in O.E. 3.0 for this year was packaging and there is really no cost associated with optimizing our packaging.
Operator: Felicia Hendrix, Barclays Capital.
Felicia Hendrix - Barclays Capital: Bryan, first question for you, you definitely seem optimistic about the second half, thank you for laying that roadmap out for us, and then also your view in the first half was that it was in line with expectations. But it was lower than ours and the street. So I'm just wondering, as we now through half of the year, are you seeing anything different or anything that's changed at retail from where you were thinking about it from the beginning of the year? Again, I understand that from a Company's perspective internally you're on plan, but I'm just wondering have you seen anything changed from the industry perspective.
Bryan Stockton - Chairman and CEO: Felicia, no, we're working very closely with our customer globally. I think everybody is still very excited about the fall holiday season. We're not hearing anything that is other than complementary to the toy business. We are working very hard to get the right shelf space and the right merchandizing in place. So I think from a customer standpoint, we're feeling good. I think when you then take it up to a macro level, people still expect the toy industry to continue to grow. We're seeing growth and outside of the U.S., for example, in Western Europe and – so I think everybody is still positive about toys.
Kevin Farr - CFO: Yeah, I think the outlook for the industry really is unchanged with regard to it's expected to grow on a global basis about 4% to 6% and the U.S. is about 30% of that business, global business.
Felicia Hendrix - Barclays Capital: Kevin, just you've given some long-term benchmark goals and operating income, up 6% to 8% is one of them. So do you, even though year-to-date your operating income is flat, do you still expect that to be up 6% to 8% for the year?
Kevin Farr - CFO: Well, I'm not going to give guidance on – bottom line guidance on operating income. I can't say, though, that the 6% to 8% is consistent with what we target and we needed to achieve that to deliver top third to top quartile popular TSR and I think as we look at the first half , we have been delivering that consistently.
Felicia Hendrix - Barclays Capital: Why do you use the term guidance? Just wondering, have you guys discussed – and Bryan this is for you. I'll put you on hot spot for a second. Have you guys discussed internally at all about giving guidance? This quarter you missed street estimates by a lot. We, obviously, were all wrong in this gauged kind of this second quarter, but it also creates a lot of volatility. So I'm just wondering, have you guys talked about that. Bryan, you're still – you're relatively new for the role, so just wondering if you're looking at that decision differently than you have – than the company might have in the past?
Bryan Stockton - Chairman and CEO: It's a great question and the answer is, no, we're not thinking about it differently and I'll explain why. Number one, as we've said I think consistently from the Bob Eckert era to now the Bryan Stockto era. We don't manage this business quarter-by-quarter. We really think about it in terms of a pre-season and the season. That's why in my comments and Kevin's comments you look at the first half or really third of the year, it's half of the calendar that the third of the business year. The revenues up 4%, the gross margins are up 150 basis points and EPS is up. So, we like where we are at the churn and we’ve all been in this business long enough and you cover this long enough to know and others that sometimes you get hiccups in some quarters that catch us all a little bit by surprise. But overall, when we look at our performance for the year and that's really what we focus on delivering performance not only category growth performance but TSR performance for our stockholders. So, we're going to continue to give I'd say strategic insights as to where we think we'd like to be and leave it at that, but if we start getting into the quarter-by-quarter guidance, it just is we don't think particularly helpful in keeping the discussions with you all, really focused on the strategic issues that we're all trying to address.
Kevin Farr - CFO: Again I think as we look at our performance we look at it more than just a year. We look at it over the long-term, we think about that as you know over the next two to three years and I think if you look at our performance over the one year period, the three year period, the five year period and 10 year period. We have been delivering top third to top quartile performance. So I think we've been focused on the right things to generate share long-term shareholder value.
Felicia Hendrix - Barclays Capital: In terms just quickly why the share count increase? Is that stock-option exercise or something else?
Kevin Farr - CFO: It does relate to stock-option exercises, yes, over the last couple of years.
Operator: James Hardiman, Longbow Research.
James Hardiman - Longbow Research: Most of my questions have been answered. I did have a couple of clarifications. I guess, first, you mentioned that you materially under shipped Barbie during the first half, but if you want to recapture that in the second half, does that mean that wholesale is actually going to exceed retail in the second half of the year for Barbie? I guess more broadly, how should I think about the overall relationship between whole versus retail trends in the first half and whether or not that changes during the back half of the year?
Bryan Stockton - Chairman and CEO: I think that our hope would be that we want to continue to grow all of our brands and POS drive shipment. So we would hope to see POS improve and see shipments improve. So, I'm not going to make a comment about how we think about the consumption of Barbie, but we like to keep our POS and our inventory and our shipments in balance and we think we've got some strong programs for the second half to do that.
James Hardiman - Longbow Research: If I may just on the calendar, there is a whole lot of brands that you guys are bringing to the table this year. Sofia, Ever After High, Max Steel, Mike the Knight, Planes, Frozen, Bubble Guppies. If I just think about all of these different brands, the toy properties in particular, which of those began to ship in 2Q? I'm assuming that if vast majority of these will ship or at least begin to ship in the third quarter, are there any that are entirely a fourth quarter event. Maybe chronologically, how should I think about when you began – brands begin to ship and how they ramp?
Bryan Stockton - Chairman and CEO: So it's a difficult question to answer because a lot of it depends on the timing of the launch of certain things. I'd tell you, on internal things with the exception of Ever After, we should begin to start seeing some shipments on things like Max Steel and more shipments on Thomas Wood and Mike the Knight. Sometimes during the third quarter, as retailers begin to get ready to set their planograms, that's really what drives those planogram set dates. As I think about Ever After High, with as Jim said, we are beginning the global rollout late in the fourth quarter. So we will see something happen there, but as we launch these brands, we have to be patient. You have to get the brand seeded with consumers; let them really engaged with it and then begin shipments. So that's the way we think about it internally. As it relates to the other initiatives with their entertainment partners, it is really driven by the timing of their launches. For example, Frozen launches; its (not a) global launch in fourth quarter. It's late here in the U.S. It's going to be staggered throughout the rest of the world. So it really depends on the date. So I am not going to give you specific guidance on quarter, but I'd tell you that’s kind of how we think about it. Frankly, we are excited about it and our retail partners are excited about it. We spend a lot of time planning in this first half to make sure that we execute well in the second half. As I said, that was one of our three priorities is; one, we've got to get the Girls portfolio momentum to continue to build; two, make sure that we continue to make progress on Fisher-Price; and three, execute all those great programs that you just highlighted.
Operator: Michael Swartz, SunTrust Robinson Humphrey.
Michael Swartz - SunTrust Robinson Humphrey: I just wanted to touch real briefly on cost and input cost I guess for the second half of the year and I think Kevin you said the current cost basket, how you look at it, is really kind of in line with expectations going in the year. I know it's just with the volatility and the rise in crude oil and now that you're in the middle of production, I mean are there any offsets that give you comfort that it's kind of in line with your prior expectations?
Kevin Farr - CFO: Yes. I think our expectations is that due to rise in oil and the volatility in foreign exchange that costs are going to go up, when your look at our overall basket of cost, as I said earlier, they are pretty consistent with our cost assumptions and we continue day in and day out to work on incremental manufacturing efficiency programs to kind of offset those puts and takes that we always see in those basket of cost.
Michael Swartz - SunTrust Robinson Humphrey: So there is nothing like labor, transportation freight that you can point to that's kind of offsetting. It's just more kind of internal initiatives on efficiency?
Kevin Farr - CFO: That's correct. In our O.E. 3.0 efforts on packaging too.
Drew Vollero - SVP, IR: Thank you. There will be a replay of this call available beginning at 11.30 a.m. Eastern Time. The number to call for the replay is area code 404-537-3406 and the passcode is 9778871. Thank you for participating in today's call. Thank you.
Operator: Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and have a wonderful day.