Did Mattel Inc. recently avoid a potential Reg FD violation?

ORIGINAL COVERAGE

Below is an excerpt from the original Bloomberg coverage:

Mattel Says It Expects U.S. Barbie Sales To Rise This Year

By Andrea Cheng, Feb. 13 — Mattel, Inc., the world's biggest toymaker, expects new products including Cali Girl Barbie will lift U.S. sales of its largest product line, Barbie, which fell 25 percent last quarter.

Sales are expected to rise in the mid-single digit range this year, Matt Bousquette, president of Mattel Brands, said in an interview at the company's showroom during the American International Toy Fair in New York. He declined to be more specific about the range.

Dolls, plush toys and play sets tied to Barbie's fourth video release, "Barbie as the Princess and the Pauper" also are expected to increase demand, as are My Scene Barbie doll lines for older girls, he said .... "We've already seen a pickup in the first quarter," Bousquette said. "Our primary objective is to build" Barbie sales.

MATTEL'S RESPONSE

Below is the actual text of Mattel's Feb. 13 release:

Mattel ReiteratesGuidance Policy

EL SEGUNDO, Calif., Feb. 13 — Today Bloomberg published a story containing certain comments attributed to a Mattel executive during an interview at the American International Toy Fair in New York. The story indicated that, in the context of discussing certain new toys being shown at the Toy Fair, the executive made sales projections related to the Barbie® brand. As the company has previously indicated, it is Mattel policy not to provide sales or earnings guidance. The company encourages investors not to rely on the information contained in the story.

In what sounded like a scene out of The Wizard of Oz, on Feb. 13 the toy maker’s public relations department fired off a succinct press release, in effect warning investors, “Don’t listen to this man.”

The Faux Paux

That man happened to be Matt Bousquette, president of Mattel Brands, who gave an interview to a Bloomberg reporter at the American International Toy Fair in New York. In that interview, he provided sales projections related to its Barbie line of dolls for this year. (Original Bloomberg coverage at right.)

In the press release, issued shortly after the Bloomberg story ran on its wire, the company said that it is Mattel’s policy not to provide sales or earnings guidance. “The company encourages investors not to rely on the information contained in the story,” it added in the press release.

No further elaboration or context. Interestingly, it neither said the information was wrong nor corrected any of the information.

Which raises the question: Why was Mattel so uppity about the executive’s statement?

The company insists the sole issue is that the executive divulged information it doesn’t traditionally reveal. And this is a valid concern on their part.

The company wouldn’t comment in an interview, but in an email communication, Mattel spokeswoman Lisa Marie Bongiovanni wrote, “During Mattel's year-end 2002 conference call (February 3, 2003), the company announced that it would no longer provide guidance. The press release that was issued in response to the Bloomberg story goes to the issue that Mattel does not provide guidance and during an interview with an executive at Toy Fair, the reporter misconstrued comments that could be considered guidance. The press release was an attempt to clear up any confusion.”

Guidance Or Reg. FD Issue?

However, not everyone sees it this way. Joseph Yurman, a securities analyst who follows Mattel for Bear, Stearns, believes Mattel’s swift reaction was partly the guidance issuance, but also partly a concern that the executive might have violated Regulation Fair Disclosure.

“More so the latter,” he says. “It was more, ‘let’s make sure there is no question about selective disclosure here.' They erred on the side of caution.”

Bongiovanni, however, insists there is no Reg FD issue. “It is my understanding of the regulation that communications with the media are not affected,” she writes in the e-mail.

Not necessarily.

Under Reg FD, if a company makes a selective disclosure to market participants like securities analysts, money managers, or stockbroker, an immediate public disclosure is then required.

However, according to a spokesman at the SEC, it is still not fully clear what the result would be from selective disclosure to a reporter. In fact, the SEC has not clarified this issue at all. “Companies can only release material non-public information in ways that are reasonably designed to be widely disseminated,” says the spokesman.

This would include news outlets like the Wall Street Journal and The New York Times. But, not necessarily Bloomberg. “We haven’t brightly defined broad dissemination,” the SEC spokesman adds.

In fact, disclosure to just one wire service may not even put a company on safe ground.

Now, it would probably require an egregious violation for the SEC to go after a company that selectively discloses to the media since it would also wind up bumping up against the First Amendment.

So, if Mattel were only concerned about the selective disclosure issue and not the guidance issue, it probably would have had no reason to worry.

But, given the apparent gray area, one observer figures, “their lawyers (probably) advised them” to retract the statement.

In this era, better safe than investigated.