MATTEL INC /DE/ 10-K

Item 8. Financial Statements and Supplementary Data. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Mattel's management, including Ynon Kreiz, its principal executive officer, and Anthony DiSilvestro, its principal financial officer, evaluated the effectiveness of Mattel's internal control over financial reporting using the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that Mattel's internal control over financial reporting was effective as of December 31, 2022. The effectiveness of Mattel's internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report that appears herein. 50 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Mattel, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Mattel, Inc. and its subsidiaries (the "Company") as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts and allowances for each of the three years in the period ended December 31, 2022 appearing after the signature and power of attorney pages (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 51 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Sales Adjustments Accrual – Discretionary Component As described in Note 1 to the consolidated financial statements, the Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and allowances for returns or defective merchandise. Accruals for these programs are recorded in net sales as sales adjustments that reduce gross billings in the period the related sale is recognized. As disclosed by management, sales adjustments for such programs totaled $613.6 million for the year ended December 31, 2022. The accrual for such programs, which can either be contractual or discretionary in nature, is based on an assessment of customer purchases, customer performance of specified promotional activities, and other specified factors such as customer sales volume. While certain sales adjustment amounts are readily determinable at year end and do not require estimates, other sales adjustments, such as discretionary sales adjustments, require significant judgment by management to make these estimates. In making these estimates, management considers all available information, including the overall business environment, historical trends, and information from customers. The principal considerations for our determination that performing procedures relating to the discretionary component of the sales adjustments accrual is a critical audit matter are the significant judgment by management in estimating the discretionary component of the sales adjustments accrual, which in turn led to a high degree of auditor judgment, subjectivity, and audit effort in performing procedures and evaluating audit evidence relating to management's estimate. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the estimate of the discretionary component of the sales adjustments accrual. These procedures also included, among others (i) testing management's process for developing the estimate of the discretionary component of the sales adjustments accrual, (ii) evaluating the reasonableness of available information considered by management in developing the estimate, (iii) testing the completeness and accuracy of underlying data used in the estimate, (iv) evaluating, on a sample basis, the results of a retrospective comparison of sales adjustments accrued in the prior year to settlements in the current year, and (v) testing, on a sample basis, settlements subsequent to year-end. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 21, 2023 We have served as the Company's auditor since 1974. 52 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2022 December 31, 2021 (In thousands, except share data) ASSETS Current Assets Cash and equivalents $ 761,235 $ 731,362 Accounts receivable, net of allowances for credit losses of $ 27.6 million and $ 10.7 million in 2022 and 2021, respectively 860,221 1,072,684 Inventories 894,064 777,184 Prepaid expenses and other current assets 213,515 293,299 Total current assets 2,729,035 2,874,529 Noncurrent Assets Property, plant, and equipment, net 469,132 455,966 Right-of-use assets, net 318,680 325,484 Goodwill 1,378,551 1,390,207 Deferred income tax assets 471,672 526,906 Identifiable intangible assets, net 425,100 476,858 Other noncurrent assets 385,491 343,944 Total Assets $ 6,177,661 $ 6,393,894 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable 471,475 579,152 Accrued liabilities 678,689 991,592 Income taxes payable 37,584 27,509 Total current liabilities 1,187,748 1,598,253 Noncurrent Liabilities Long-term debt 2,325,644 2,570,992 Noncurrent lease liabilities 271,418 283,626 Other noncurrent liabilities 336,582 372,174 Total noncurrent liabilities 2,933,644 3,226,792 Commitments and Contingencies (See Note 12) Stockholders' Equity Common stock $ 1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued 441,369 441,369 Additional paid-in capital 1,808,308 1,832,144 Treasury stock at cost: 87.0 million shares and 90.7 million shares in 2022 and 2021, respectively ( 2,129,639 ) ( 2,219,990 ) Retained earnings 2,847,709 2,456,597 Accumulated other comprehensive loss ( 911,478 ) ( 941,271 ) Total stockholders' equity 2,056,269 1,568,849 Total Liabilities and Stockholders' Equity $ 6,177,661 $ 6,393,894 The accompanying notes are an integral part of these consolidated financial statements. 53 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands, except per share amounts) Net Sales $ 5,434,687 $ 5,457,741 $ 4,588,433 Cost of sales 2,953,335 2,831,079 2,345,330 Gross Profit 2,481,352 2,626,662 2,243,103 Advertising and promotion expenses 534,255 545,674 525,803 Other selling and administrative expenses 1,271,582 1,351,426 1,342,564 Operating Income 675,515 729,562 374,736 Interest expense 132,818 253,937 198,332 Interest (income) ( 9,398 ) ( 3,503 ) ( 3,945 ) Other non-operating expense, net 47,760 8,364 2,692 Income Before Income Taxes 504,335 470,764 177,657 Provision (benefit) for income taxes 135,851 ( 420,381 ) 65,549 (Income) from equity method investments ( 25,429 ) ( 11,842 ) ( 11,471 ) Net Income $ 393,913 $ 902,987 $ 123,579 Net Income Per Common Share - Basic $ 1.11 $ 2.58 $ 0.36 Weighted-average number of common shares 353,792 350,007 347,463 Net Income Per Common Share - Diluted $ 1.10 $ 2.53 $ 0.35 Weighted-average number of common and potential common shares 359,612 357,253 349,116 The accompanying notes are an integral part of these consolidated financial statements. 54 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Net Income $ 393,913 $ 902,987 $ 123,579 Other Comprehensive Income (Loss), Net of Tax Currency translation adjustments ( 6,191 ) ( 54,690 ) ( 32,423 ) Employee benefit plan adjustments 15,601 32,755 ( 16,997 ) Available-for-sale security adjustments 3,646 1,075 738 Net unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) 40,449 23,253 ( 18,289 ) Reclassification adjustments included in net income ( 26,513 ) 912 ( 8,121 ) 13,936 24,165 ( 26,410 ) Other Comprehensive Income (Loss), Net of Tax 26,992 3,305 ( 75,092 ) Comprehensive Income $ 420,905 $ 906,292 $ 48,487 The accompanying notes are an integral part of these consolidated financial statements. 55 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Cash Flows From Operating Activities: Net Income $ 393,913 $ 902,987 $ 123,579 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation 144,577 146,274 154,526 Amortization 37,602 38,039 38,925 Share-based compensation 69,072 60,081 60,168 Bad debt expense 18,279 1,202 9,149 Inventory obsolescence 64,916 40,881 44,006 Deferred income taxes 69,510 56,658 ( 5,300 ) (Income) from equity method investments ( 25,429 ) ( 11,842 ) ( 10,752 ) Loss on extinguishment of long-term borrowings — 101,695 — (Gain) loss on sale of assets/business, net ( 26,905 ) ( 23,823 ) 1,028 Release of valuation allowances on deferred tax assets — ( 540,803 ) — Loss on liquidation of subsidiary 45,366 — — Changes in assets and liabilities: Accounts receivable 197,902 ( 85,603 ) ( 92,280 ) Inventories ( 203,522 ) ( 330,899 ) ( 42,193 ) Prepaid expenses and other current assets ( 11,960 ) ( 26,533 ) ( 20,039 ) Accounts payable, accrued liabilities, and income taxes payable ( 320,442 ) 207,143 17,403 Other, net ( 10,037 ) ( 49,994 ) 7,476 Net cash flows provided by operating activities 442,842 485,463 285,696 Cash Flows From Investing Activities: Purchases of tools, dies, and molds ( 80,175 ) ( 74,222 ) ( 59,404 ) Purchases of other property, plant, and equipment ( 106,328 ) ( 77,131 ) ( 59,389 ) (Payments of) proceeds from foreign currency forward exchange contracts, net ( 520 ) 1,585 ( 22,883 ) Proceeds from sale of assets/business 38,148 43,649 5,815 Other, net 4,650 1,022 3,757 Net cash flows used for investing activities ( 144,225 ) ( 105,097 ) ( 132,104 ) Cash Flows From Financing Activities: (Payments of) proceeds from short-term borrowings, net — ( 969 ) 969 Payments of long-term borrowings ( 250,000 ) ( 1,575,997 ) — Proceeds from long-term borrowings, net — 1,184,913 — Tax withholdings for share-based compensation ( 30,440 ) ( 19,987 ) ( 7,263 ) Proceeds from stock option exercises 27,750 12,131 64 Other, net ( 7,949 ) ( 2,165 ) 388 Net cash flows used for financing activities ( 260,639 ) ( 402,074 ) ( 5,842 ) Effect of Currency Exchange Rate Changes on Cash and Equivalents ( 8,105 ) ( 9,111 ) ( 15,597 ) Change in Cash and Equivalents 29,873 ( 30,819 ) 132,153 Cash and Equivalents at Beginning of Period 731,362 762,181 630,028 Cash and Equivalents at End of Period $ 761,235 $ 731,362 $ 762,181 Supplemental Cash Flow Information: Cash paid during the year for: Income taxes, gross $ 89,617 $ 93,129 $ 99,495 Interest 129,217 210,140 190,674 The accompanying notes are an integral part of these consolidated financial statements. 56 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Additional Paid-In Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity (In thousands) Balance, December 31, 2019 $ 441,369 $ 1,825,569 $ ( 2,318,921 ) $ 1,430,031 $ ( 869,484 ) $ 508,564 Net income — — — 123,579 — 123,579 Other comprehensive loss, net of tax — — — — ( 75,092 ) ( 75,092 ) Issuance of treasury stock for stock option exercises — ( 41 ) 105 — — 64 Issuance of treasury stock for restricted stock units vesting — ( 42,830 ) 35,567 — — ( 7,263 ) Deferred compensation — ( 186 ) 310 — — 124 Share-based compensation — 60,168 — — — 60,168 Balance, December 31, 2020 441,369 1,842,680 ( 2,282,939 ) 1,553,610 ( 944,576 ) 610,144 Net income — — — 902,987 — 902,987 Other comprehensive income, net of tax — — — — 3,305 3,305 Issuance of treasury stock for stock option exercises — ( 4,806 ) 16,937 — — 12,131 Issuance of treasury stock for restricted stock units vesting — ( 65,774 ) 45,787 — — ( 19,987 ) Deferred compensation — ( 37 ) 225 — — 188 Share-based compensation — 60,081 — — — 60,081 Balance, December 31, 2021 441,369 1,832,144 ( 2,219,990 ) 2,456,597 ( 941,271 ) 1,568,849 Net income — — — 393,913 — 393,913 Other comprehensive income, net of tax — — — — 26,992 26,992 Issuance of treasury stock for stock option exercises — ( 7,049 ) 34,800 — — 27,751 Issuance of treasury stock for restricted stock units vesting — ( 85,847 ) 55,408 — — ( 30,439 ) Deferred compensation — ( 12 ) 143 — — 131 Share-based compensation — 69,072 — — — 69,072 Adjustment of accumulated other comprehensive loss to retained earnings for available-for-sale securities — — — ( 2,801 ) 2,801 — Balance, December 31, 2022 $ 441,369 $ 1,808,308 $ ( 2,129,639 ) $ 2,847,709 $ ( 911,478 ) $ 2,056,269 The accompanying notes are an integral part of these consolidated financial statements. 57 MATTEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1— Summary of Significant Accounting Policies Principles of Consolidation and Basis of Preparation The consolidated financial statements include the accounts of Mattel, Inc. ("Mattel") and its subsidiaries. All wholly and majority-owned subsidiaries are consolidated and included in Mattel's consolidated financial statements. Mattel does not have any minority stock ownership interests in which it has a controlling financial interest that would require consolidation. All significant intercompany accounts and transactions have been eliminated upon consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. Use of Estimates Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could ultimately differ from those estimates. Cash and Equivalents Cash and equivalents include short-term investments, which are highly liquid investments with maturities of three months or less when purchased. Such investments are stated at cost, which approximates market value. Accounts Receivable and Allowance for Credit Losses Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash generation, financing availability, and liquidity status of each customer. Customers are reviewed at least annually, with more frequent reviews performed as necessary, based on the customers' financial condition and the level of credit being extended. For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping to those customers on credit. Mattel uses a variety of financial arrangements to ensure collectability of accounts receivable of customers, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment. Mattel records an allowance for credit losses based on collection history and management's assessment of the current economic trends, business environment, customers' financial condition, accounts receivable aging, and customer disputes that may impact the level of future credit losses. Inventories Inventories are stated at the lower of cost or net realizable value. Expense associated with inventory obsolescence is recognized in cost of sales and establishes a lower cost basis for the inventory. Cost is determined by the first-in, first-out method. Property, Plant, and Equipment Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 10 to 30 years for buildings and building improvements, 3 to 15 years for machinery and equipment, 3 to 10 years for software, and 10 to 20 years, not to exceed the lease term, for leasehold improvements. Tools, dies, and molds are depreciated using the straight-line method over 3 years. Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The carrying amount of property, plant, and equipment is reviewed when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any potential impairment identified is initially assessed by evaluating the operating performance and future undiscounted cash flows of the underlying assets groups. When property, plant and equipment are sold or retired, the cost of the property and the related accumulated depreciation are removed from the consolidated balance sheets, and any resulting gain or loss is included in the consolidated statements of operations. 58 Leases Mattel routinely enters into noncancelable lease agreements primarily for premises and equipment used in the normal course of business. Mattel excludes right-of-use assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and combines lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees. Mattel determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Mattel's leases may include one or more options to renew for additional terms of up to 10 years. Renewal and termination options are included in the lease term when it is reasonably certain that Mattel will exercise the option. Certain of these leases include escalation clauses that adjust rental expense to reflect changes in price indices, as well as renewal and termination options. A portion of Mattel's lease agreements include contingent rental payments based on a percentage of sales. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of Mattel's leases do not provide an implicit rate, Mattel uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Operating lease costs are recognized on a straight-line basis over the lease term. Goodwill and Intangible Assets Goodwill is allocated to various reporting units, which are at the operating segment level, for the purpose of evaluating whether goodwill is impaired. Mattel's reporting units are: (i) North America, which consists of the United States and Canada, (ii) International, and (iii) American Girl. Components of the operating segments have been aggregated into a single reporting unit as the components have similar economic characteristics. The similar economic characteristics include the nature of the products, the nature of the production processes, the customers, and the manner in which the products are distributed. Mattel tests its goodwill for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value. Mattel also tests its amortizable intangible assets, which are primarily comprised of trademarks and trade names, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Amortization is computed primarily using the straight-line method over the estimated useful lives of the amortizable intangible assets. Foreign Currency Translation Exposure Mattel's reporting currency is the U.S. dollar. The translation of its net investments in subsidiaries with non-U.S. dollar functional currencies subjects Mattel to the impact of currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars at year-end exchange rates. Net income and cash flow items are translated at weighted-average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity. Foreign Currency Transaction Exposure Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. Mattel's currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income in the consolidated statements of operations. Transaction gains or losses on hedged intercompany inventory transactions are recorded in the consolidated statements of operations in the period in which the inventory is sold to customers. Gains and losses on unhedged intercompany loans and advances are recorded as a component of other non-operating expense, net in the consolidated statements of operations in the period in which the currency exchange rate changes. 59 Derivative Instruments Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. At the inception of the contracts, Mattel designates these derivatives as cash flow hedges and documents the relationship of the hedge to the underlying transaction. Hedge effectiveness is assessed at inception and throughout the life of the hedge to ensure the hedge qualifies for hedge accounting. Changes in fair value associated with hedge ineffectiveness, if any, are recorded in the consolidated statements of operations. Changes in fair value of cash flow hedge derivatives are deferred and recorded as part of accumulated other comprehensive loss in stockholders' equity until the underlying transaction affects earnings. In the event that an anticipated transaction is no longer likely to occur, Mattel recognizes the change in fair value of the derivative in its consolidated statements of operations in the period the determination is made. Mattel uses foreign currency forward exchange contracts to hedge intercompany loans and advances denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts, and as such, changes in fair value are recorded in the period of change in the consolidated statements of operations. Mattel utilizes derivative contracts to hedge certain purchases of commodities, which were not material. Revenue Recognition and Sales Adjustments Revenue is recognized when control of the goods is transferred to the customer, which is either upon shipment or upon receipt of finished goods by the customer, depending on the contract terms, with payment due typically within 60 days from the invoice date. Mattel routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and allowances for returns or defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. Accruals for these programs are recorded in net sales as sales adjustments that reduce gross billings in the period the related sale is recognized. The accrual for such programs, which can either be contractual or discretionary in nature, is based on an assessment of customer purchases, customer performance of specified promotional activities, and other specified factors such as customer sales volume. In making these estimates, management considers all available information, including the overall business environment, historical trends, and information from customers. Mattel also enters into symbolic and functional licensing arrangements, whereby the licensee pays Mattel royalties based on sales of licensed product, and in certain cases are subject to minimum guaranteed amounts. The timing of revenue recognition for certain of these licensing arrangements with minimum guarantees is based on the determination of whether the license of intellectual property ("IP") is symbolic, which includes the license of Mattel's brands, or functional, which includes the license of Mattel's completed television or streaming content. Revenues from symbolic licenses of IP are recognized based on actual sales when Mattel expects royalties to exceed the minimum guarantee. For symbolic licensing arrangements in which Mattel does not expect royalties to exceed the minimum guarantee, an estimate of the royalties expected to be recouped is recognized on a straight-line basis over the license term. Revenues from functional licenses of IP are recognized once the license period has commenced and the licensee has the ability to use the delivered content. Mattel does not evaluate contracts of one year or less for the existence of a significant financing component. Multi-year contracts were not material. Advertising and Promotion Costs Advertising production costs are expensed in the period the underlying advertisement is first aired. The costs of other advertising and promotional programs are expensed in the period incurred. Product Recalls and Withdrawals Mattel establishes a reserve for product recalls and withdrawals on a product-specific basis when circumstances giving rise to the recall or withdrawal become known. Facts and circumstances related to the recall or withdrawal, including where the product affected by the recall or withdrawal is located (e.g., with consumers, in customers' inventory, or in Mattel's inventory), cost estimates for shipping and handling for returns, cost estimates for communicating the recall or withdrawal to consumers and customers, and cost estimates for parts and labor if the recalled or withdrawn product is deemed to be repairable, are considered when establishing a product recall or withdrawal reserve. These factors are updated and reevaluated each period, and the related reserves are adjusted when these factors indicate that the recall or withdrawal reserve is either not sufficient to cover or exceeds the estimated product recall or withdrawal expenses. 60 Design and Development Costs Product design and development costs primarily include employee compensation and outside services and are expensed in the period incurred. Employee Benefit Plans Mattel and certain of its subsidiaries have retirement and other postretirement benefit plans covering substantially all employees of these entities. Actuarial valuations are used in determining amounts recognized in the financial statements for certain retirement and other postretirement benefit plans (see "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans"). Share-Based Payments Mattel recognizes the cost of service-based employee share-based payment awards on a straight-line attribution basis over the requisite employee service period, net of estimated forfeitures. Determining the fair value of share-based awards at the measurement date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility, and the expected dividends. Mattel estimates the fair value of options granted using the Black-Scholes valuation model. The expected life of stock options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is based on the historical volatility of Mattel's stock for a period approximating the expected life. Expected dividend yield is based on the annual rate of dividends expected to be paid over the expected life. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues approximating the expected life. Mattel estimates and adjusts forfeiture rates based on a periodic review of recent forfeiture activity and expected future employee turnover. Mattel determines the fair value of restricted stock units ("RSUs"), excluding performance RSUs, based on the closing market price of Mattel's common stock on the date of grant, adjusted by the present value of the expected dividends for RSUs that are not entitled to a dividend during the vest period. Mattel determines the fair value of the performance-related components of its performance RSUs based on the closing market price of Mattel's common stock on the date of grant. It determines the fair value of the market-related components of its performance RSUs based on the Monte Carlo valuation methodology. Income Taxes Certain income and expense items are accounted for differently for financial reporting and income tax purposes. Deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, applying enacted statutory income tax rates in effect for the year in which the differences are expected to reverse. Mattel evaluates the realization of its deferred tax assets based on all available evidence and establishes a valuation allowance to reduce deferred tax assets when it is more likely than not that they will not be realized. Mattel recognizes the financial statement effects of a tax position when it is more likely than not that, based on technical merits, the position will be sustained upon examination. The tax benefits of the position recognized in the financial statements are then measured based on the largest amount of benefit that is greater than 50% likely to be realized upon settlement with a taxing authority. In addition, Mattel recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision . In the normal course of business, Mattel is regularly audited by U.S. federal, state, local, and foreign tax authorities. The ultimate settlement of any particular issue with the applicable taxing authority could have a material impact on Mattel's consolidated financial statements. Equity Method Investments Mattel utilizes the equity method when accounting for investments in which Mattel is able to exercise significant influence, but does not hold a controlling interest. Significant influence is generally presumed to exist when Mattel owns between 20% to 50% of the investee. Under the equity method of accounting, the initial equity investment is recorded at cost. The carrying amount of the investment is subsequently adjusted for Mattel's share of net income (loss) and distributions from the investee. 61 Mattel owns a 50 % equity interest in Mattel163 Limited, a joint venture with a third party that develops and operates online games. Mattel's portion of the joint venture's earnings and losses is recognized on a three-month lag as the joint venture's financial information is not available in a sufficiently timely manner. The joint venture was not significant for the periods presented. New Accounting Pronouncements Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance, which requires business entities to disclose information about certain government assistance by applying the grant or contribution model. Mattel adopted the guidance on January 1, 2022. The adoption of this new accounting standard did not have a material impact on Mattel's consolidated financial statements. In March 2020 and January 2021, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, respectively. ASU 2020-04 and ASU 2021-01 provide optional expedients and exceptions for applying U.S. GAAP, to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The guidance in ASU 2020-04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. The adoption of these new accounting standards did not have a material impact on Mattel's consolidated financial statements. Accounting Pronouncements Not Yet Adopted In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. ASU 2022-04 requires that buyers in a supplier finance program disclose sufficient information for a user of the financial statements to understand the program's nature, activity, changes since prior period, and potential magnitude. The guidance in ASU 2022-04 is effective for interim and fiscal years beginning after December 15, 2022. Once adopted, it should be applied retrospectively to each period in which a balance sheet is presented, excluding the amendment on rollforward information, which should be presented prospectively. Mattel is currently evaluating the impact of the adoption of ASU 2022-04 on its consolidated financial statements. Note 2— Property, Plant, and Equipment Property, plant, and equipment, net includes the following: December 31, 2022 December 31, 2021 (In thousands) Land $ 18,045 $ 21,811 Buildings 303,827 317,114 Machinery and equipment 654,437 762,462 Software 336,716 348,062 Tools, dies, and molds 510,398 537,499 Leasehold improvements 104,135 115,844 Construction in progress 79,742 55,559 2,007,300 2,158,351 Less: accumulated depreciation ( 1,538,168 ) ( 1,702,385 ) $ 469,132 $ 455,966 During the second quarter of 2022, Mattel completed the sale of the American Girl corporate offices and a distribution center located in Middleton, Wisconsin, which included land and buildings. Mattel received net proceeds from the sale of $ 23.8 million, which resulted in a pre-tax gain of $ 15.2 million, recorded in other selling and administrative expenses in the consolidated statement of operations. 62 During the first quarter of 2021, Mattel completed the sale of a manufacturing plant located in Mexico, which included land and buildings. Mattel received net proceeds from the sale of $ 24.8 million, which resulted in a pre-tax gain of $ 15.8 million, recorded in other selling and administrative expenses in the consolidated statement of operations. Note 3— Goodwill and Intangible Assets, Net Goodwill Mattel's reporting units are at the same level as its operating segments. The change in the carrying amount of goodwill by reporting unit for 2022 and 2021 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America reporting unit selling those brands, thereby causing a foreign currency translation impact. During the first quarter of 2021, Mattel sold its arts, crafts, and stationery business, resulting in a reduction of goodwill of approximately $ 2 million. North America International American Girl Total (In thousands) Balance at December 31, 2020 $ 733,401 $ 452,862 $ 207,571 $ 1,393,834 Dispositions $ ( 1,290 ) ( 1,056 ) — ( 2,346 ) Currency exchange rate impact ( 322 ) ( 959 ) — ( 1,281 ) Balance at December 31, 2021 731,789 450,847 207,571 1,390,207 Currency exchange rate impact 204 ( 11,860 ) — ( 11,656 ) Balance at December 31, 2022 $ 731,993 $ 438,987 $ 207,571 $ 1,378,551 In the third quarter of 2022, Mattel performed a qualitative assessment to determine whether it was more likely than not that the carrying amount of Mattel's reporting units exceeded their fair value. As a result of Mattel's qualitative assessment, it was determined that goodwill was not impaired. There were no events or changes in circumstances subsequent to the third quarter assessment that indicate that the carrying amount of a reporting unit may exceed its fair value as of December 31, 2022. Intangible Assets, Net Identifiable intangibles were $ 425.1 million, net of accumulated amortization of $ 364.9 million, and $ 476.9 million, net of accumulated amortization of $ 327.0 million, as of December 31, 2022 and 2021, respectively. The estimated future amortization expense for the next five years is as follows: Amortization Expense (In thousands) 2023 $ 38,134 2024 32,168 2025 32,137 2026 28,736 2027 28,271 Mattel tests its amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Mattel's amortizable intangible assets primarily consist of trademarks and trade names. During 2022, Mattel's amortizable intangible assets were not impaired. During 2021, Mattel discontinued the use of an intangible asset, which resulted in an asset impairment charge of $ 2.0 million. During 2020, Mattel's amortizable intangible assets were no t impaired. Note 4— Employee Benefit Plans Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all employees of these companies. These plans include defined benefit pension plans, defined contribution retirement plans, postretirement benefit plans, and deferred compensation and excess benefit plans. In addition, Mattel makes contributions to government-mandated retirement plans in countries outside the United States where its employees work. 63 A summary of retirement plan expense, net is as follows: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Defined contribution retirement plans 36,900 34,821 26,697 Defined benefit pension plans $ 5,693 $ 14,858 $ 9,670 Deferred compensation and excess benefit plans ( 7,113 ) 6,857 6,391 Postretirement benefit plans ( 2,047 ) ( 1,968 ) ( 1,972 ) $ 33,433 $ 54,568 $ 40,786 Defined Benefit Pension and Postretirement Benefit Plans Mattel provides defined benefit pension plans for eligible domestic employees, which are intended to comply with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Some of Mattel's foreign subsidiaries have defined benefit pension plans covering substantially all of their eligible employees. Mattel funds these plans in accordance with the terms of the plans and local statutory requirements, which differ for each of the countries in which the subsidiaries are located. Mattel also has unfunded postretirement health insurance plans covering certain eligible domestic employees. A summary of the components of Mattel's net periodic benefit cost (credit) and other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31 is as follows: Defined Benefit Pension Plans Postretirement Benefit Plans 2022 2021 2020 2022 2021 2020 (In thousands) Net Periodic Benefit Cost (Credit): Service cost $ 4,010 $ 4,925 $ 4,348 $ 2 $ 2 $ 1 Interest cost 12,081 10,094 15,079 89 78 139 Expected return on plan assets ( 19,242 ) ( 18,531 ) ( 19,694 ) — — — Amortization of prior service cost (credit) 155 163 303 ( 2,038 ) ( 2,038 ) ( 2,038 ) Recognized actuarial loss (gain) 8,996 11,177 9,584 ( 100 ) ( 10 ) ( 74 ) Settlement loss 19 6,982 — — — — Curtailment (gain) loss ( 326 ) 48 50 — — — Net periodic benefit cost (credit) $ 5,693 $ 14,858 $ 9,670 $ ( 2,047 ) $ ( 1,968 ) $ ( 1,972 ) Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): Net actuarial (gain) loss $ ( 23,501 ) $ ( 42,671 ) $ 12,624 $ ( 922 ) $ ( 605 ) $ 850 Prior service cost 1,022 204 269 — — — Amortization of prior service (cost) credit ( 155 ) ( 163 ) ( 303 ) 2,038 2,038 2,038 Total recognized in other comprehensive (income) loss (a) $ ( 22,634 ) $ ( 42,630 ) $ 12,590 $ 1,116 $ 1,433 $ 2,888 Total recognized in net periodic benefit (credit) cost and other comprehensive income (loss) $ ( 16,941 ) $ ( 27,772 ) $ 22,260 $ ( 931 ) $ ( 535 ) $ 916 (a) Amounts exclude related tax expense of approximately $ 6 million, $ 9 million, and $ 2 million, during 2022, 2021, and 2020, respectively, which are also included in other comprehensive income (loss). 64 Net periodic benefit cost (credit) for Mattel's domestic defined benefit pension and postretirement benefit plans was calculated on January 1 of each year using the following assumptions: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 Defined benefit pension plans: Discount rate 2.5 % 2.2 % 3.0 % Weighted-average rate of future compensation increases N/A N/A N/A Long-term rate of return on plan assets 5.0 % 5.0 % 5.5 % Postretirement benefit plans: Discount rate 2.5 % 2.2 % 3.0 % Annual increase in Medicare Part B premium 6.0 % 6.0 % 6.0 % Health care cost trend rate: Pre-65 7.0 % 7.0 % 7.0 % Post-65 7.0 % 6.8 % 6.8 % Ultimate cost trend rate: Pre-65 4.5 % 4.5 % 4.5 % Post-65 4.5 % 4.5 % 4.5 % Year that the rate reaches the ultimate cost trend rate: Pre-65 2028 2027 2026 Post-65 2028 2027 2026 Discount rates, weighted-average rates of future compensation increases, and long-term rates of return on plan assets for Mattel's foreign defined benefit pension plans differ from the assumptions used for Mattel's domestic defined benefit pension plans due to differences in local economic conditions in the locations where the non-U.S. plans are based. The rates shown in the preceding table are indicative of the weighted-average rates of all of Mattel's defined benefit pension plans given the relative insignificance of the foreign plans to the consolidated total. 65 Mattel used a measurement date of December 31, 2022 for its defined benefit pension and postretirement benefit plans. A summary of the changes in benefit obligation and plan assets is as follows: Defined Benefit Pension Plans Postretirement Benefit Plans December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 (In thousands) Change in Benefit Obligation: Benefit obligation, beginning of year $ 613,266 $ 671,181 $ 5,176 $ 6,246 Service cost 4,010 4,925 2 2 Interest cost 12,081 10,094 89 78 Impact of currency exchange rate changes ( 14,874 ) ( 5,762 ) — — Actuarial gain ( 124,229 ) ( 16,597 ) ( 1,022 ) ( 614 ) Benefits paid ( 36,943 ) ( 49,895 ) ( 251 ) ( 536 ) Plan amendments — ( 656 ) — — Curtailments ( 326 ) — — — Settlements ( 359 ) 1,612 — — Other ( 102 ) ( 1,636 ) — — Benefit obligation, end of year $ 452,524 $ 613,266 $ 3,994 $ 5,176 Change in Plan Assets: Plan assets at fair value, beginning of year $ 457,132 $ 457,880 $ — $ — Actual (loss) return on plan assets ( 91,470 ) 28,622 — — Employer contributions 5,029 21,841 251 536 Impact of currency exchange rate changes ( 11,105 ) ( 1,244 ) — — Benefits paid ( 36,943 ) ( 49,895 ) ( 251 ) ( 536 ) Settlements ( 359 ) — — — Other ( 109 ) ( 72 ) — — Plan assets at fair value, end of year $ 322,175 $ 457,132 $ — $ — Net Amount Recognized in Consolidated Balance Sheets: Funded status, end of year $ ( 130,349 ) $ ( 156,134 ) $ ( 3,994 ) $ ( 5,176 ) Current accrued benefit liability $ ( 5,109 ) $ ( 5,119 ) $ ( 630 ) $ ( 730 ) Noncurrent accrued benefit liability, net ( 125,240 ) ( 151,015 ) ( 3,364 ) ( 4,446 ) Net amount recognized $ ( 130,349 ) $ ( 156,134 ) $ ( 3,994 ) $ ( 5,176 ) Amounts Recognized in Accumulated Other Comprehensive Loss (a): Net actuarial loss (gain) $ 213,166 $ 236,667 $ ( 1,877 ) $ ( 956 ) Prior service cost (credit) 1,056 189 ( 6,073 ) ( 8,110 ) $ 214,222 $ 236,856 $ ( 7,950 ) $ ( 9,066 ) (a) Amounts exclude related tax benefits of approximately $ 68 million and $ 74 million for December 31, 2022 and 2021, respectively, which are also included in accumulated other comprehensive loss. The accumulated benefit obligation differs from the projected benefit obligation in that it assumes future compensation levels will remain unchanged. Mattel's accumulated benefit obligation for its defined benefit pension plans as of 2022 and 2021 totaled $ 437.8 million and $ 595.4 million, respectively. The actuarial gain recognized in 2022 for the defined benefit pension plan was driven primarily by the increase in the discount rate from the prior year that was used to determine the projected benefit obligation at December 31, 2022. The actuarial gain recognized in 2021 for the defined benefit pension plan was driven primarily by the increase in the discount rate from the prior year that was used to determine the projected benefit obligation at December 31, 2021. 66 As of December 31, 2022 and 2021, information for defined benefit pension plans that had aggregate accumulated benefit obligations and projected benefit obligations in excess of plan assets is as follows: For the Year Ended December 31, 2022 December 31, 2021 (In thousands) Projected benefit obligation $ 391,459 $ 523,968 Accumulated benefit obligation 376,769 506,124 Fair value of plan assets 251,487 348,660 The assumptions used in determining the projected and accumulated benefit obligations of Mattel's domestic defined benefit pension and postretirement benefit plans are as follows: December 31, 2022 December 31, 2021 Defined benefit pension plans: Discount rate 4.9 % 2.5 % Cash balance interest crediting rate 4.0 % 4.0 % Weighted-average rate of future compensation increases N/A N/A Postretirement benefit plans: Discount rate 4.9 % 2.5 % Annual increase in Medicare Part B premium 6.0 % 6.0 % Health care cost trend rate: Pre-65 7.0 % 7.0 % Post-65 7.0 % 7.0 % Ultimate cost trend rate: Pre-65 4.5 % 4.5 % Post-65 4.5 % 4.5 % Year that the rate reaches the ultimate cost trend rate: Pre-65 2029 2028 Post-65 2029 2028 Discount rates, weighted-average rates of future compensation increases, and long-term rates of return on plan assets for Mattel's foreign defined benefit pension plans differ from the assumptions used for Mattel's domestic defined benefit pension plans due to differences in local economic conditions in the locations where the non-U.S. plans are based. The rates shown in the preceding table are indicative of the weighted-average rates of all of Mattel's defined benefit pension plans given the relative insignificance of the foreign plans to the consolidated total. At the end of each fiscal year, Mattel determines the weighted-average discount rate used to calculate the projected benefit obligation. The discount rate is an estimate of the current interest rate at which the benefit plan liabilities could be effectively settled at the end of the year. The discount rate also impacts the interest cost component of plan income or expense. As of December 31, 2022, Mattel determined the discount rate for its domestic defined benefit pension and post retirement benefit plans used in determining the projected and accumulated benefit obligations to be 4.9 %, as compared to 2.5 % as of December 31, 2021. In estimating this rate, Mattel reviews rates of return on high-quality corporate bond indices, which approximate the timing and amount of benefit payments. 67 The estimated future benefit payments for Mattel's defined benefit pension and postretirement benefit plans are as follows: Defined Benefit Pension Plans Postretirement Benefit Plans (In thousands) 2023 $ 35,334 $ 630 2024 35,944 530 2025 35,333 520 2026 34,206 420 2027 34,357 420 2028 - 2032 170,476 1,300 Mattel expects to make cash contributions totaling approximately $ 6 million to its defined benefit pension and postretirement benefit plans in 2023, substantially all of which will be for benefit payments for its unfunded plans. Mattel periodically commissions a study of the plans' assets and liabilities to determine an asset allocation that would best match expected cash flows from the plans' assets to expected benefit payments. Mattel monitors the returns earned by the plans' assets and reallocates investments as needed. Mattel's overall investment strategy is to achieve an adequately diversified asset allocation mix of investments that provides for both near-term benefit payments as well as long-term growth. The assets are invested in a combination of indexed and actively managed funds. The target allocations for Mattel's domestic plan assets, which comprise 79 % of Mattel's total plan assets, are 42 % in U.S. equities, 28 % in non-U.S. equities, 20 % in fixed income securities, and 10 % in real estate securities. The U.S. equities are benchmarked against the S&P 500, and the non-U.S. equities are benchmarked against a combination of developed and emerging markets indices. Fixed income securities are long-duration bonds intended to closely match the duration of the liabilities and include U.S. government treasuries and agencies, corporate bonds from various industries, and mortgage-backed and asset-backed securities. 68 Mattel's defined benefit pension plan assets are measured and reported in the consolidated financial statements at fair value using inputs, which are more fully described in "Note 10 to the Consolidated Financial Statements—Fair Value Measurements," as follows: December 31, 2022 Level 1 Level 2 Level 3 Total (In thousands) U.S. government and U.S. government agency securities $ — $ 11,699 $ — $ 11,699 U.S. corporate debt instruments — 47,637 — 47,637 International corporate debt instruments — 17,338 — 17,338 Mutual funds (a) — — — 86,637 Money market funds 8,043 — — 8,043 Other investments — 7,563 — 7,563 Insurance "buy-in" policy — — 57,310 57,310 Collective trust funds (a): U.S. equity securities 37,915 International equity securities 2,694 Global fixed income 24,355 Real Estate $ 20,984 Total $ 8,043 $ 84,237 $ 57,310 $ 322,175 December 31, 2021 Level 1 Level 2 Level 3 Total (In thousands) U.S. government and U.S. government agency securities $ — $ 1,584 $ — $ 1,584 U.S. corporate debt instruments — 68,070 — 68,070 International corporate debt instruments — 23,752 — 23,752 Mutual funds (a) — — — 132,165 Money market funds 3,650 — — 3,650 Other investments — 6,979 — 6,979 Insurance "buy-in" policy — — 30,731 30,731 Collective trust funds (a): U.S. equity securities 65,256 International equity securities 12,832 Global fixed income 48,745 Diversified funds 46,407 Real Estate $ 16,961 Total $ 3,650 $ 100,385 $ 30,731 $ 457,132 (a) These investments primarily consist of privately placed funds that are valued based on net asset value per share. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position and its related disclosures. The fair value of collective trust funds is determined based on the net asset value per share held at year-end. The fair value of U.S. government securities, U.S. government agency securities, corporate debt instruments, mutual funds, and money market funds are determined based on quoted market prices or are estimated using pricing models with observable inputs or quoted prices of securities with similar characteristics. 69 In December 2017, Mattel entered into an insurance buy-in policy contract with a private limited life insurance company to insure a portion of the U.K. pension plan, which initially covered approximately 40 % of the total membership in the plan. In 2022, Mattel entered into an additional insurance buy-in policy contract to insure the remainder of the membership in the plan. The assets and liabilities with respect to insured pensioners are assumed to match for the purposes of ASC 715, Pension — Retirement Benefits (i.e. the full benefits have been insured). The initial value of the asset associated with this policy was equal to the premium paid to secure the policy, and is adjusted each reporting period for changes in interest rates, discount rates, and benefits paid. As the valuation of this asset is judgmental, and there are no observable inputs associated with the valuation, the buy-in contract is classified as Level 3 on the fair value hierarchy. The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Level 3 (in thousands) Balance at December 31, 2020 $ 32,794 Purchases, sales, and settlements ( 1,854 ) Changes in fair value ( 209 ) Balance at December 31, 2021 30,731 Purchases, sales, and settlements 41,347 Changes in fair value ( 14,768 ) Balance at December 31, 2022 $ 57,310 Mattel's defined benefit pension plan assets are not directly invested in Mattel common stock. Mattel believes that the long-term rate of return on plan assets of 5.0 % as of December 31, 2022 is reasonable based on historical returns. Defined Contribution Retirement Plans Domestic employees are eligible to participate in a 401(k) savings plan, the Mattel, Inc. Personal Investment Plan (the "Plan"), sponsored by Mattel, which is a funded defined contribution plan intended to comply with ERISA's requirements. Contributions to the Plan include voluntary contributions by eligible employees and employer automatic and matching contributions by Mattel. The Plan allows employees to allocate both their voluntary contributions and their employer automatic and matching contributions to a variety of investment funds, including a fund that is invested in Mattel common stock (the "Mattel Stock Fund"). Employees are not required to allocate any of their Plan account balance to the Mattel Stock Fund, allowing employees to limit or eliminate their exposure to market changes in Mattel's stock price. Furthermore, the Plan limits the percentage of the employee's total account balance that may be allocated to the Mattel Stock Fund to 25 %. Employees may generally reallocate their account balances on a daily basis. However, pursuant to Mattel's insider trading policy, employees classified as insiders under Mattel's insider trading policy are limited to certain periods in which they may make allocations into or out of the Mattel Stock Fund. Certain non-U.S. employees participate in other defined contribution retirement plans with varying vesting and contribution provisions. Deferred Compensation and Excess Benefit Plans Mattel maintains a deferred compensation and 401(k) excess plan (the "DCP") that permits certain officers and key employees to elect to defer portions of their compensation. The participant DCP deferrals, together with certain contributions made by Mattel, earn various rates of return. The liability for these plans as of December 31, 2022 and 2021 was $ 49.7 million and $ 62.8 million, respectively, and is primarily included in other noncurrent liabilities in the consolidated balance sheets. Changes in the market value of the participant-selected investment options are recorded as retirement plan expense within other selling and administrative expenses in the consolidated statements of operations. Separately, Mattel has purchased group trust-owned life insurance contracts designed to assist in funding these benefits under the DCP. The cash surrender value of these policies, valued at $ 79.6 million and $ 88.6 million as of December 31, 2022 and 2021, respectively, are held in an irrevocable grantor trust, the assets of which are subject to the claims of Mattel's creditors and are included in other noncurrent assets in the consolidated balance sheets. 70 Annual Incentive Compensation Mattel has annual incentive compensation plans under which officers and key employees may earn cash incentive compensation based on Mattel's and individual performance, subject to certain approvals of the Compensation Committee of the Board of Directors. Mattel did not record incentive compensation for 2022 under its annual incentive compensation plan. Incentive compensation for 2021 and 2020 was $ 137.1 million, and $ 122.5 million, respectively, for awards under these plans and was included in other selling and administrative expenses. Note 5— Seasonal Financing and Debt Seasonal Financing On September 15, 2022, Mattel entered into a revolving credit agreement (the "Credit Agreement") as the borrower with Bank of America, N.A., as administrative agent, and the other lenders and financial institutions party thereto, providing for $ 1.40 billion in aggregate principal amount of senior secured revolving credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility will mature on September 15, 2025. In connection with the entry into the Credit Agreement, the Company terminated the commitments and satisfied all outstanding obligations under the previous credit agreement, dated December 20, 2017 (as amended), by and among Mattel, certain domestic and foreign subsidiaries of Mattel, as additional borrowers, certain other domestic and foreign subsidiaries of Mattel, as guarantors thereunder, Bank of America, N.A., as global administrative agent, collateral agent, and Australian security trustee, and the other lenders and financial institutions party thereto. Borrowings under the Revolving Credit Facility will bear interest at a floating rate, which can be either, at Mattel's option, (i) adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.125 % to 2.000 % per annum or (ii) an alternate base rate plus an applicable margin ranging from 0.125 % to 1.000 % per annum, in each case, such applicable margins to be determined based on Mattel's credit ratings. In addition to paying interest on the outstanding principal under the Revolving Credit Facility, Mattel will be required to pay (i) an unused line fee per annum of the average daily unused portion of the Revolving Credit Facility, (ii) a letter of credit fronting fee based on a percentage of the aggregate face amount of outstanding letters of credit, and (iii) certain other customary fees and expenses of the lenders and agents. The obligations of Mattel under the Revolving Credit Facility are guaranteed by each domestic subsidiary of Mattel that guarantees any of Mattel's senior unsecured notes (collectively, the "Guarantors"). If Mattel achieves a debt rating of BBB-, Baa3, and/or BBB- (or higher) from any two of S&P, Moody's, and Fitch, respectively, and no event of default has occurred or is continuing at such time and Mattel provides a certification regarding the foregoing to the administrative agent (a "Fall-Away Event"), the obligations of Mattel under the Revolving Credit Facility will instead be required to be guaranteed by each existing and future direct and indirect domestic subsidiary of Mattel only to the extent such subsidiary guarantees other indebtedness of Mattel in an aggregate principal or committed amount in excess of $ 50 million. The Revolving Credit Facility is secured by liens on substantially all of Mattel's and the Guarantors' present and after-acquired assets (subject to certain exceptions), including domestic accounts receivable, inventory, certain trademarks and patents, and certain equity interests in direct material subsidiaries of Mattel and the Guarantors. If a Fall-Away Event occurs, all collateral securing the Revolving Credit Facility will be permanently released. The Credit Agreement contains customary covenants, including, but not limited to, restrictions on Mattel's and its subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances, or investments, pay dividends, sell or otherwise dispose of assets, amend organizational documents, change accounting policies or reporting practices, or enter into negative pledges with respect to assets that constitute collateral. The restrictive covenants also contain customary exceptions, including the uncapped ability to make investments and pay dividends if, in each case, the pro forma total leverage ratio after giving effect to such investment or dividend will be at least 0.25 to 1.00 inside the then-applicable total leverage ratio financial covenant level. Further, if a Fall-Away Event occurs, the restrictive covenants governing investments, dividends, negative pledges, and changes in accounting policies or reporting practices will no longer apply. The Credit Agreement requires the maintenance of (a) an interest coverage ratio of not less than 2.75 to 1.00 as of the end of each fiscal quarter and (b) a total leverage ratio as of the end of each fiscal quarter, not to exceed 4.50 to 1.00 as of the end of the fiscal quarter ending September 30, 2022, with certain specified step-downs to occur thereafter with respect to subsequent fiscal quarters. 71 As of December 31, 2022, Mattel had no borrowings outstanding under the Revolving Credit Facility. As of December 31, 2021, Mattel had no borrowings outstanding under the previous senior secured revolving credit facilities. Outstanding letters of credit under the Revolving Credit Facility totaled approximately $ 8 million as of December 31, 2022. Outstanding letters of credit under the previous senior secured revolving credit facilities totaled approximately $ 10 million as of December 31, 2021. To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines. As of December 31, 2022, foreign credit lines totaled approximately $ 22 million. Mattel expects to extend the majority of these credit lines throughout 2023. As of December 31, 2022, Mattel was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement is a material agreement, and failure to comply with its covenants may result in an event of default under the terms of the Revolving Credit Facility. If Mattel were to default under the terms of the Revolving Credit Facility, its ability to meet its seasonal financing requirements could be adversely affected. Short-Term Borrowings As of December 31, 2022 and 2021, Mattel had no short-term borrowings outstanding. During 2022 and 2021, Mattel had average borrowings under the new and previous senior secured revolving credit facilities and other short-term borrowings of $ 2.9 million and $ 77.3 million, respectively, to help finance its seasonal working capital requirements. The weighted-average interest rate on borrowings under the senior secured revolving credit facilities and other short-term borrowings during 2022 and 2021 was 3.6 % and 1.3 %, respectively. Mattel's average foreign short-term borrowings were not material during 2022 and 2021. Long-Term Debt On March 19, 2021, Mattel issued (i) $ 600 million aggregate principal amount of 3.375 % Senior Notes due 2026 (the "2026 Notes") and (ii) $ 600 million aggregate principal amount of 3.750 % Senior Notes due 2029 (the "2029 Notes" and, together with the 2026 Notes, the "Notes" and each a "series" of the Notes). The 2026 Notes were issued pursuant to an indenture dated March 19, 2021 (the "2026 Notes Indenture"), among the Company, the guarantors named therein and U.S. Bank National Association, as trustee (the "Trustee"). The 2029 Notes were issued pursuant to an indenture dated March 19, 2021 (the "2029 Notes Indenture" and, together with the 2026 Notes Indenture, the "Indentures" and each, an "Indenture"), among the Company, the guarantors named therein and the Trustee. The Notes of each series pay interest semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. Mattel may redeem all or part of the 2026 Notes at any time or from time to time prior to April 1, 2023, or April 1, 2024, in the case of the 2029 Notes, at its option, at a redemption price equal to 100 % of the principal amount, plus a "make whole" premium, plus accrued and unpaid interest on applicable Notes being redeemed to, but excluding, the redemption date. Mattel may also redeem up to 40 % of the principal amount of the Notes of such series at any time or from time to time prior to April 1, 2023, in the case of the 2026 Notes, or April 1, 2024, in the case of the 2029 Notes, at its option, at a redemption price equal to 103.375 %, in the case of the 2026 Notes, or 103.750 %, in the case of the 2029 Notes, of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the applicable redemption date, with the net cash proceeds of sales of one or more equity offerings by Mattel or any direct or indirect parent of Mattel. Mattel may redeem all or part of the 2026 Notes or 2029 Notes at any time or from time to time on or after April 1, 2023, in the case of the 2026 Notes, or April 1, 2024, in the case of the 2029 notes, at its option, at a redemption price including a call premium that varies (from 0 % to 1.688 %, in the case of the 2026 Notes, or from 0 % to 1.875 %, in the case of the 2029 Notes) depending on the year of redemption, plus accrued and unpaid interest to, but excluding, the applicable redemption date. The Notes of each series are Mattel's and the guarantors' senior unsecured obligations. The Notes of each series are guaranteed by Mattel's existing, and subject to certain exceptions, future wholly-owned domestic restricted subsidiaries that guarantee Mattel's senior secured revolving credit facilities or certain other indebtedness. Under the terms of the applicable Indenture, the Notes of each series rank equally in right of payment with all of Mattel's existing and future senior debt, including Mattel's Existing Notes (as defined in the Indenture) and borrowings under the senior secured revolving credit facilities, and rank senior in right of payment to Mattel's existing and future debt and other obligations that expressly provide for their subordination to the Notes. The Notes of each series are structurally subordinated to all of the existing and future liabilities, including trade payables, of Mattel's subsidiaries that do not guarantee the Notes of each series and are effectively subordinated to Mattel's and the guarantors' existing and future senior secured debt to the extent of the value of the collateral securing such debt (including borrowings under the senior secured revolving credit facilities). The guarantees are, with respect to the assets of the guarantors of the Notes of each series, structurally senior to all of Mattel's existing indebtedness, future indebtedness or other liabilities that are not guaranteed by such guarantors, including Mattel's obligations under the Existing Non-Guaranteed Notes (as defined in the Indentures). 72 The Indentures contain covenants that limit Mattel's (and some of its subsidiaries') ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make investments in unrestricted subsidiaries; (iv) create liens; (v) enter into certain sale/leaseback transactions; (vi) merge or consolidate, or sell, transfer or otherwise dispose of substantially all of their assets; and (vii) designate subsidiaries as unrestricted. In 2021, Mattel used the net proceeds from the issuance of the $ 600 million of 2026 Notes and $ 600 million of 2029 Notes, plus cash on hand, to redeem and retire $ 1.50 billion in aggregate principal amount of the 6.75 % Senior Notes due 2025 and pay related prepayment premiums and transaction fees and expenses. As a result of the redemptions, Mattel incurred losses on extinguishment of debt of $ 101.7 million, comprised of $ 76.0 million of prepayment premiums and a $ 25.7 million write-off of the unamortized debt issuance costs, which was recorded within interest expense in the consolidated statements of operations. On December 30, 2022, Mattel used cash on hand to redeem and retire $ 250 million aggregate principal amount of the 3.15 % Senior Notes due 2023. Mattel's long-term debt consists of the following: Interest Rate December 31, 2022 December 31, 2021 (In thousands) 2010 Senior Notes due October 2040 6.20 % $ 250,000 $ 250,000 2011 Senior Notes due November 2041 5.45 % 300,000 300,000 2013 Senior Notes due March 2023 3.15 % — 250,000 2019 Senior Notes due December 2027 5.875 % 600,000 600,000 2021 Senior Notes due April 2026 3.375 % 600,000 600,000 2021 Senior Notes due April 2029 3.75 % 600,000 600,000 Debt issuance costs and debt discount ( 24,356 ) ( 29,008 ) 2,325,644 2,570,992 Less: current portion — — Total long-term debt $ 2,325,644 $ 2,570,992 The aggregate principal amount of long-term debt maturing in the next five years and thereafter is as follows: 2010 Senior Notes 2011 Senior Notes 2019 Senior Notes 2021 Senior Notes Total (In thousands) 2023 $ — $ — $ — $ — $ — 2024 — — — — — 2025 — — — — — 2026 — — — 600,000 600,000 2027 — — 600,000 — 600,000 Thereafter 250,000 300,000 — 600,000 1,150,000 $ 250,000 $ 300,000 $ 600,000 $ 1,200,000 $ 2,350,000 73 Note 6— Stockholders' Equity Preference Stock Mattel is authorized to issue up to 20.0 million shares of $ 0.01 par value preference stock, of which none is currently outstanding. Preferred Stock Mattel is authorized to issue up to 3.0 million shares of $ 1.00 par value preferred stock, of which none is currently outstanding. Common Stock Repurchase Program During 2022, 2021, and 2020, Mattel did no t repurchase any shares of its common stock. Mattel's share repurchase program was first announced on July 21, 2003. On July 17, 2013, the Board of Directors authorized Mattel to increase its share repurchase program by $ 500.0 million. At December 31, 2022, share repurchase authorizations of $ 203.0 million had not been executed. Repurchases will take place from time to time, depending on market conditions. Mattel's share repurchase program has no expiration date. Dividends During 2022, 2021, and 2020, Mattel did no t pay any dividends to holders of its common stock. The payment of dividends on common stock is at the discretion of the Board of Directors and is subject to customary limitations. 74 Accumulated Other Comprehensive Income (Loss) The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss): For the Year Ended December 31, 2022 Derivative Instruments Available-for-Sale Security Employee Benefit Plans Currency Translation Adjustments Total (In thousands) Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2021 $ 8,796 $ ( 6,447 ) $ ( 154,099 ) $ ( 789,521 ) $ ( 941,271 ) Other comprehensive income (loss) before reclassifications 40,449 — 14,988 ( 51,557 ) 3,880 Amounts reclassified from accumulated other comprehensive income (loss) ( 26,513 ) 3,646 613 45,366 23,112 Net increase (decrease) in other comprehensive income (loss) 13,936 3,646 15,601 ( 6,191 ) 26,992 Adjustment of accumulated other comprehensive loss to retained earnings — 2,801 — — 2,801 Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2022 $ 22,732 $ — $ ( 138,498 ) $ ( 795,712 ) $ ( 911,478 ) For the Year Ended December 31, 2021 Derivative Instruments Available-for-Sale Security Employee Benefit Plans Currency Translation Adjustments Total (In thousands) Accumulated Other Comprehensive Loss, Net of Tax, as of December 31, 2020 $ ( 15,369 ) $ ( 7,522 ) $ ( 186,854 ) $ ( 734,831 ) $ ( 944,576 ) Other comprehensive income (loss) before reclassifications 23,253 1,075 19,961 ( 54,690 ) ( 10,401 ) Amounts reclassified from accumulated other comprehensive loss 912 — 12,794 — 13,706 Net increase (decrease) in other comprehensive loss 24,165 1,075 32,755 ( 54,690 ) 3,305 Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2021 $ 8,796 $ ( 6,447 ) $ ( 154,099 ) $ ( 789,521 ) $ ( 941,271 ) For the Year Ended December 31, 2020 Derivative Instruments Available-for-Sale Security Employee Benefit Plans Currency Translation Adjustments Total (In thousands) Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2019 $ 11,041 $ ( 8,260 ) $ ( 169,857 ) $ ( 702,408 ) $ ( 869,484 ) Other comprehensive (loss) income before reclassifications ( 18,289 ) 738 ( 22,941 ) ( 32,423 ) ( 72,915 ) Amounts reclassified from accumulated other comprehensive income (loss) ( 8,121 ) — 5,944 — ( 2,177 ) Net (decrease) increase in other comprehensive income (loss) ( 26,410 ) 738 ( 16,997 ) ( 32,423 ) ( 75,092 ) Accumulated Other Comprehensive Loss, Net of Tax, as of December 31, 2020 $ ( 15,369 ) $ ( 7,522 ) $ ( 186,854 ) $ ( 734,831 ) $ ( 944,576 ) 75 The following table presents the classification and amount of the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations: For the Year Ended Consolidated Statements of Operations Classification December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Derivative Instruments Gain (loss) on foreign currency forward exchange and other contracts $ 26,500 $ ( 512 ) $ 8,040 Cost of sales Tax effect 13 ( 400 ) 81 Provision (benefit) for income taxes $ 26,513 $ ( 912 ) $ 8,121 Net Income Employee Benefit Plans Amortization of prior service credit (a) $ 1,883 $ 1,875 $ 1,735 Other non-operating expense, net Recognized actuarial loss (a) ( 8,896 ) ( 11,167 ) ( 9,510 ) Other non-operating expense, net Curtailment gain (loss) (a) 326 ( 48 ) ( 50 ) Other non-operating expense, net Settlement loss (a) ( 19 ) ( 6,982 ) — Other non-operating expense, net ( 6,706 ) ( 16,322 ) ( 7,825 ) Tax effect 6,093 3,528 1,881 Provision (benefit) for income taxes $ ( 613 ) $ ( 12,794 ) $ ( 5,944 ) Net Income Currency Translation Adjustments Loss on liquidation of subsidiary $ ( 45,366 ) $ — $ — Other non-operating expense, net Tax effect (b) — — — Provision (benefit) for income taxes $ ( 45,366 ) $ — $ — (a) The amortization of prior service credit, recognized actuarial loss, curtailment gain (loss) and settlement loss are included in the computation of net periodic benefit cost. Refer to "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans" for additional information regarding Mattel's net periodic benefit cost. (b) There is no tax affect associated with the loss on the liquidation of Mattel's subsidiary in Argentina. During 2022, Mattel adjusted accumulated other comprehensive loss by $ 6.4 million in relation to previously recorded available-for-sale equity securities. This amount was adjusted in order to account for such securities in a manner consistent with ASC 321, Investments—Equity Securities. The adjustment includes $ 3.6 million of accumulated other comprehensive loss reclassified to other non-operating expense, net in the consolidated statement of operations and $ 2.8 million reclassified to retained earnings in the consolidated statement of stockholders' equity. The adjustment, including tax effect, was immaterial to the financial statements. Currency Translation Adjustments During 2022, currency translation adjustments resulted in a net other comprehensive loss of $ 51.6 million, primarily due to the weakening of the British pound sterling, Euro, and Hong Kong dollar against the U.S. dollar, partially offset by the strengthening of the Mexican peso and Brazilian real against the U.S. dollar. Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the accumulated currency translation adjustment related to the foreign entity is reclassified from accumulated other comprehensive loss to earnings. During the fourth quarter of 2022, the liquidation of Mattel's subsidiary in Argentina was substantially complete and as a result, $ 45.4 million of accumulated currency translation losses were recognized in other non-operating expense, net within the consolidated statement of operations. During 2021, currency translation adjustments resulted in a net other comprehensive loss of $ 54.7 million, primarily due to the weakening of the Turkish lira, Chilean peso, Mexican peso, Euro, and Brazilian real against the U.S. dollar. 76 During 2020, currency translation adjustments resulted in a net other comprehensive loss of $ 32.4 million, primarily due to the weakening of the Brazilian real, Russian ruble, and Mexican peso against the U.S. dollar, partially offset by the strengthening of the British pound sterling against the U.S. dollar. Note 7— Leases The following table summarizes Mattel's right-of-use assets and liabilities and other information about its leases: December 31, 2022 December 31, 2021 (In thousands, except years and percentage information) Right-of-use assets, net $ 318,680 $ 325,484 Accrued liabilities $ 75,297 $ 73,752 Noncurrent lease liabilities 271,418 283,626 Total lease liabilities $ 346,715 $ 357,378 Weighted-average remaining lease term 5.6 years 6.1 years Weighted-average discount rate 6.5 % 6.5 % The components of lease costs for the years ended December 31, 2022, 2021, and 2020 are as follows: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Lease costs (a) (b) $ 140,188 $ 134,272 $ 136,842 (a) Includes short-term and variable lease costs of approximately $ 47 million, $ 39 million, and $ 42 million for 2022, 2021, and 2020 respectively. Variable lease costs primarily relate to variable components of third party logistics rental charges, common area maintenance charges, management fees, and taxes. (b) Contingent rental expense is recorded in the period in which the contingent event becomes probable. During 2022, 2021, and 2020, contingent rental expense was not material. Supplemental information related to leases are as follows: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Cash payments for leases $ 93,465 $ 100,286 $ 96,953 Right-of-use assets obtained in exchange for new and modified lease liabilities $ 74,199 $ 105,898 $ 53,753 77 The following table shows the future maturities of lease liabilities for leases in effect as of December 31, 2022: Years Ending December 31, Lease Liabilities (In thousands) 2023 $ 93,863 2024 83,628 2025 71,004 2026 58,510 2027 31,677 Thereafter 81,106 419,788 Less: imputed interest ( 73,073 ) $ 346,715 Note 8— Share-Based Payments Mattel Stock Plans The 2010 Equity and Long-Term Compensation Plan was approved by Mattel's stockholders in May 2010 (the "2010 Plan"). Upon approval of the 2010 Plan, Mattel terminated its 2005 Equity Compensation Plan (the "2005 Plan"), except with respect to grants then outstanding under the 2005 Plan. In May 2015, Mattel's stockholders approved the Amended and Restated 2010 Equity and Long-Term Compensation Plan (the "Amended 2010 Plan"). Under the Amended 2010 Plan, Mattel has the ability to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, RSUs, performance RSUs ("performance awards"), dividend equivalent rights, and shares of common stock to officers, employees, non-employee directors, and consultants providing services to Mattel. Generally, options vest and become exercisable contingent upon the grantees' continued employment or service with Mattel. Nonqualified stock options are granted with an exercise price not less than 100 % of the fair market value of Mattel's common stock on the date of grant, expire no later than 10 years from the date of grant, and vest on a schedule determined by the Compensation Committee of the Board of Directors, generally over a period of three years from the date of grant. In the event of a retirement of an employee aged 55 years or older with five or more years of service, or the death or disability of an employee, that occurs in each case at least six months after the grant-date, nonqualified stock options become fully vested. Time-vesting RSUs granted under the Amended 2010 Plan vest on a schedule determined by the Compensation Committee of the Board of Directors, generally over a period of three years from the date of grant. In the event of the involuntary termination of an employee aged 55 years or older with five or more years of service, or the death or disability of an employee, that occurs at least six months after the grant-date, RSUs become fully vested. The Amended 2010 Plan also contains provisions regarding grants of equity compensation to the non-employee members of the Board of Directors. The Amended 2010 Plan expires on March 26, 2025, except as to any grants then outstanding. 78 The number of shares of common stock available for grant under the Amended 2010 Plan is subject to an aggregate limit of the sum of (i) approximately 130 million shares, (ii) the number of shares that remained available for issuance under the 2005 Plan on May 12, 2010, and (iii) any shares subject to awards outstanding under the 2005 Plan that on or after May 12, 2010 are forfeited or otherwise terminate or expire without the issuance of shares to the holder of the award. The Amended 2010 Plan is further subject to detailed share-counting rules. As a result of such share-counting rules, full-value grants such as grants of restricted stock or RSUs count against shares remaining available for grant at a higher rate than grants of stock options and stock appreciation rights. For grants prior to March 1, 2019, each stock option or stock appreciation right grant is treated as using one available share for each share actually subject to such grant, whereas each restricted stock or RSU grant is treated as using three available shares for each share actually subject to such full-value grant. For grants on or after March 1, 2019 through March 1, 2020, each stock option or stock appreciation right grant is treated as using one available share for each share actually subject to such grant, whereas each restricted stock or RSU grant is treated as using two and seven tenths available shares for each share actually subject to such full-value grant. For grants on or after March 2, 2020 through March 1, 2021, each stock option or stock appreciation right grant is treated as using one available share for each share actually subject to such grant, whereas each restricted stock or RSU grant is treated as using two and thirty-five hundredths available shares for each share actually subject to such full-value grant. For grants on or after March 2, 2021 through March 1, 2022, each stock option or stock appreciation right grant is treated as using one available share for each share actually subject to such grant, whereas each restricted stock or RSU grant is treated as using one and nine tenths available shares for each share actually subject to such full-value grant. For grants on or after March 2, 2022, each stock option or stock appreciation right grant is treated as using one available share for each share actually subject to such grant, whereas each restricted stock or RSU grant is treated as using one and one half available shares for each share actually subject to such full-value grant. At December 31, 2022, there were approximately 36 million shares available for grant under the Amended 2010 Plan if target performance goals are achieved under Mattel's long-term incentive programs ("LTIPs"), and approximately 30 million shares available if maximum performance goals are achieved under the LTIPs. Mattel recognized total share-based compensation expense related to stock options, RSUs, and performance awards of $ 69.1 million, $ 60.1 million, and $ 60.2 million during 2022, 2021, and 2020, respectively, which is included in other selling and administrative expenses in the consolidated statements of operations. The income tax benefit related to stock options, RSUs, and performance awards during 2022 and 2021 was approximately $ 9 million and $ 7 million, respectively. There was no income tax benefit related to stock options, RSUs, or performance awards during 2020 as future tax benefits related to these awards were fully offset by a valuation allowance. As of December 31, 2022, total unrecognized compensation cost related to unvested share-based payments totaled $ 89.5 million and is expected to be recognized over a weighted-average period of 1.9 years. Stock Options Mattel recognized compensation expense of $ 13.2 million, $ 10.1 million, and $ 11.6 million for stock options during 2022, 2021, and 2020, respectively, which is included within other selling and administrative expenses in the consolidated statements of operations. The fair values of options granted have been estimated using the Black-Scholes valuation model. The expected life of stock options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is based on the historical volatility of Mattel's stock for a period approximating the expected life. Expected dividend yield is based on the annual rate of dividends expected to be paid over the expected life. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues approximating the expected life. The weighted-average grant-date fair value of options granted during 2022, 2021, and 2020 was $ 11.18 , $ 9.31 , and $ 4.60 respectively. The following weighted-average valuation assumptions were used in determining the fair value of options granted: 2022 2021 2020 Expected life (in years) 6.4 6.2 5.9 Risk-free interest rate 3.1 % 0.8 % 0.3 % Volatility factor 43.8 % 43.6 % 43.7 % Dividend yield — % — % — % 79 The following is a summary of stock option information and weighted-average exercise prices for Mattel's stock options: 2022 2021 2020 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price (In thousands, except weighted-average exercise prices) Outstanding at January 1 19,678 $ 22.38 21,635 $ 22.10 22,510 $ 24.22 Granted 721 23.41 1,054 21.71 2,241 11.23 Exercised ( 1,412 ) 19.65 ( 687 ) 17.65 ( 4 ) 15.02 Forfeited ( 104 ) 18.13 ( 72 ) 14.00 ( 294 ) 14.38 Canceled ( 1,320 ) 34.94 ( 2,252 ) 21.10 ( 2,818 ) 31.22 Outstanding at December 31 17,563 $ 21.73 19,678 $ 22.38 21,635 $ 22.10 Exercisable at December 31 15,531 $ 22.10 16,634 $ 23.68 16,356 $ 25.01 The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of options exercised was approximately $ 8 million and $ 3 million during 2022 and 2021, respectively, and not material during 2020. At December 31, 2022, options outstanding had an intrinsic value of approximately $ 26 million with a weighted-average remaining life of 3.9 years. At December 31, 2022, options exercisable had an intrinsic value of approximately $ 21 million, with a weighted-average remaining life of 3.3 years. Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises. Cash received from stock options exercised, net of taxes during 2022 was approximately $ 28 million. At December 31, 2022, stock options vested and expected to vest totaled approximately 17 million shares, with an intrinsic value of approximately $ 26 million, weighted-average exercise price of $ 21.74 , and weighted-average remaining life of 3.9 years. During 2022, approximately 2 million stock options vested. The total grant-date fair value of stock options vested during 2022, 2021, and 2020 was approximately $ 9 million, $ 15 million, and $ 11 million, respectively. Restricted Stock Units Compensation expense recognized related to grants of RSUs was $ 37.7 million, $ 27.3 million, and $ 28.6 million in 2022, 2021, and 2020, respectively, and was included within other selling and administrative expenses in the consolidated statements of operations. RSUs are valued at the market value on the date of grant, adjusted by the present value of the expected dividends for RSUs that are not entitled to a dividend during the vest period. The expense for RSUs is evenly attributed to the periods in which the restrictions lapse, which is generally three years from the date of grant. The following is a summary of RSU information and weighted-average grant-date fair values for Mattel's RSUs: 2022 2021 2020 Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value (In thousands, except weighted-average grant-date fair values) Unvested at January 1 3,855 $ 17.03 3,986 $ 12.52 3,864 $ 15.19 Granted 2,728 23.20 2,167 21.77 2,548 11.18 Vested ( 1,790 ) 16.01 ( 1,954 ) 13.66 ( 1,970 ) 15.58 Forfeited ( 290 ) 19.77 ( 344 ) 13.72 ( 456 ) 14.45 Unvested at December 31 4,503 $ 21.00 3,855 $ 17.03 3,986 $ 12.52 At December 31, 2022, RSUs expected to vest totaled approximately 4 million shares, with a weighted-average grant-date fair value of $ 20.89 . The total grant-date fair value of RSUs vested during 2022, 2021, and 2020 was approximately $ 29 million, $ 27 million, and $ 31 million, respectively. Performance Awards Compensation expense recognized related to grants of performance awards was $ 18.2 million, $ 22.7 million, and $ 19.9 million during 2022, 2021, and 2020, respectively. 80 Mattel had four LTIP performance cycles in place during 2022, which were established by the Compensation Committee of the Board of Directors: (i) a January 1, 2019—December 31, 2021 ("2019 LTIP"), which was completed in the first quarter of 2022 (ii) a January 1, 2020—December 31, 2022 performance cycle ("2020 LTIP"), (ii) a January 1, 2021—December 31, 2023 performance cycle ("2021 LTIP"), and (iii) a January 1, 2022—December 31, 2024 performance cycle ("2022 LTIP"). Under the LTIP performance cycles in place in 2022, officers and key employees may earn shares of Mattel's common stock based on attaining certain cumulative three-year performance targets, which are subject to approvals of the Compensation Committee of the Board of Directors. The ultimate amount of shares earned for these LTIP awards may vary from 0 % to 200 % of the target number of shares, depending on the cumulative results achieved. Mattel determines the fair value of the performance-related components of its performance awards based on the closing market price of Mattel's common stock on the date of grant and determines the fair value of the market-related components of its performance awards based on the Monte Carlo valuation methodology. Performance awards cliff-vest at the end of the requisite service period, which typically occurs in the first quarter subsequent to the end of the performance period. Mattel recognizes compensation expense on a straight-line basis over the requisite service period, provided that certain cumulative three-year performance targets and other vesting criteria are met. The weighted-average grant-date fair value of performance awards granted during 2022, 2021, and 2020 was $ 28.39 , $ 22.91 , and $ 11.93 respectively. The following weighted-average valuation assumptions were used in determining the fair value of the market-related components of performance awards granted: 2022 2021 2020 Risk-free interest rate 2.8 % 0.3 % 0.1 % Volatility factor 43.4 % 50.1 % 52.7 % Dividend yield — % — % — % The following is a summary of performance award information and weighted-average grant-date fair values for Mattel's performance awards: 2022 2021 2020 Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value Shares Weighted Average Grant-Date Fair Value (In thousands, except weighted-average grant-date fair values) Unvested at January 1 3,347 $ 15.52 3,405 $ 13.79 2,217 $ 15.45 Granted (a)(b) 1,440 21.35 906 22.04 1,461 11.93 Vested ( 1,823 ) 14.89 ( 884 ) 15.63 ( 95 ) 17.97 Forfeited ( 70 ) 17.26 ( 80 ) 14.70 ( 74 ) 15.65 Canceled (a) — — — — ( 104 ) 17.97 Unvested at December 31 2,894 $ 18.77 3,347 $ 15.52 3,405 $ 13.79 (a) During 2022, Mattel granted 0.7 million shares as part of its 2022 LTIP and issued 0.8 million incremental shares under the 2019 LTIP based on the final earnout of the 2019 performance cycle, which are included in the weighted average grant-date fair value. During 2021, Mattel granted 0.8 million shares under the 2021 LTIP and issued 0.1 million incremental shares under the 2018 LTIP based on the final earnout of the 2018 performance cycle, which are included in the weighted average grant-date fair value. During 2020, Mattel granted 1.5 million shares under the 2020 LTIP and canceled 0.1 million shares under the 2017 LTIP based on the final earnout of the 2017 performance cycle. (b) The number of shares granted for the 2022 LTIP, the 2021 LTIP, and the 2020 LTIP, represents the aggregate target numbers of shares that may be issued pursuant to the award over its full term. The aggregate number of shares subject to performance awards that would be issued if performance goals are achieved at the maximum number of shares are approximately 1 million, 2 million, and 3 million for 2022, 2021, and 2020, respectively. At December 31, 2022, performance awards expected to vest totaled approximately 3 million shares, with a weighted-average grant-date fair value of $ 13.47 . The total grant-date fair value of performance awards vested during 2022, 2021, and 2020 was approximately $ 27 million, $ 14 million, and $ 2 million, respectively. 81 Note 9— Earnings Per Share The following table reconciles basic and diluted earnings per common share for the years ended December 31, 2022, 2021, and 2020. For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands, except per share amounts) Basic: Net income $ 393,913 $ 902,987 $ 123,579 Weighted-average number of common shares 353,792 350,007 347,463 Basic net income per common share $ 1.11 $ 2.58 $ 0.36 Diluted: Net income $ 393,913 $ 902,987 $ 123,579 Weighted-average number of common shares 353,792 350,007 347,463 Dilutive share-based awards (a) 5,820 7,246 1,653 Weighted-average number of common and potential common shares 359,612 357,253 349,116 Diluted net income per common share $ 1.10 $ 2.53 $ 0.35 (a) Share-based awards totaling 10.6 million, 12.1 million and 21.7 million were excluded from the calculation of diluted net income per common share for the years ended December 31, 2022, 2021, and 2020 respectively, because their effect would be antidilutive. Note 10— Fair Value Measurements The following table presents information about Mattel's assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of December 31, 2022 and 2021 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows: • Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. • Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. • Level 3 – Valuations based on inputs that are unobservable, supported by little or no market activity, and that are significant to the fair value of the assets or liabilities. 82 Mattel's financial assets and liabilities include the following: December 31, 2022 Level 1 Level 2 Level 3 Total (In thousands) Assets: Foreign currency forward exchange and other contracts (a) $ — $ 17,563 $ — $ 17,563 Liabilities: Foreign currency forward exchange and other contracts (a) $ — $ 10,754 $ — $ 10,754 December 31, 2021 Level 1 Level 2 Level 3 Total (In thousands) Assets: Foreign currency forward exchange and other contracts (a) $ — $ 18,075 $ — $ 18,075 Available-for-sale (b) 5,343 — — 5,343 Total assets $ 5,343 $ 18,075 $ — $ 23,418 Liabilities: Foreign currency forward exchange and other contracts (a) $ — $ 3,810 $ — $ 3,810 (a) The fair value of the foreign currency forward exchange and other contracts is based on dealer quotes of market forward rates and reflects the amount that Mattel would receive or pay at their maturity dates for contracts involving the same notional amounts, currencies, and maturity dates. (b) The fair value of the available-for-sale security is based on the quoted price on an active public exchange. Other Financial Instruments Mattel's financial instruments include cash and equivalents, accounts receivable and payable, accrued liabilities, short-term borrowings, and long-term debt. The fair values of these instruments, excluding long-term debt, approximate their carrying amounts because of their short-term nature. Cash and equivalents are classified as Level 1 and all other financial instruments are classified as Level 2 within the fair value hierarchy. The estimated fair value of Mattel's long-term debt was $ 2.13 billion (compared to a carrying amount of $ 2.35 billion) as of December 31, 2022 and $ 2.82 billion (compared to a carrying amount of $ 2.60 billion) as of December 31, 2021. The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and are classified as Level 2 within the fair value hierarchy. Note 11— Derivative Instruments Mattel seeks to mitigate its exposure to foreign currency transaction risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts. Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. These contracts have maturity dates of up to 24 months. These derivative instruments have been designated as effective cash flow hedges, whereby the unsettled hedges are reported in Mattel's consolidated balance sheets at fair value, with changes in the fair value of the hedges reflected in other comprehensive income ("OCI"). Realized gains and losses for these contracts are recorded in the consolidated statements of operations in the period in which the inventory is sold to customers. Mattel uses foreign currency forward exchange contracts to hedge intercompany loans and advances denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts, and as such, changes in fair value are recorded in the period of change in the consolidated statements of operations. Mattel utilizes derivative contracts to hedge certain purchases of commodities, which were not material. As of December 31, 2022 and 2021, Mattel held foreign currency forward exchange contracts and other commodity derivative instruments, with notional amounts of approximately $ 674 million and $ 925 million, respectively. 83 The following tables present Mattel's derivative assets and liabilities: Derivative Assets Balance Sheet Classification Fair Value December 31, 2022 December 31, 2021 (In thousands) Derivatives Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Prepaid expenses and other current assets $ 14,899 $ 13,361 Foreign currency forward exchange and other contracts Other noncurrent assets 1,501 1,000 Total Derivatives Designated as Hedging Instruments $ 16,400 $ 14,361 Derivatives Not Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Prepaid expenses and other current assets $ 1,163 $ 3,714 Total Derivatives Not Designated as Hedging Instruments $ 1,163 $ 3,714 $ 17,563 $ 18,075 Derivative Liabilities Balance Sheet Classification Fair Value December 31, 2022 December 31, 2021 (In thousands) Derivatives Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Accrued liabilities $ 3,647 $ 2,301 Foreign currency forward exchange and other contracts Other noncurrent liabilities 807 280 Total Derivatives Designated as Hedging Instruments $ 4,454 $ 2,581 Derivatives Not Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Accrued liabilities $ 6,261 $ 1,229 Foreign currency forward exchange and other contracts Other noncurrent liabilities 39 — Total Derivatives Not Designated as Hedging Instruments $ 6,300 $ 1,229 $ 10,754 $ 3,810 The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations: Derivatives Designated As Hedging Instruments Consolidated Statements of Operations Classification For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Foreign currency forward exchange contracts: Amount of gains (losses) recognized in OCI $ 40,449 $ 23,253 $ ( 18,289 ) Amount of gains (losses) reclassified from accumulated OCI to the consolidated statements of operations 26,513 ( 912 ) 8,121 Cost of sales 84 The net gains (losses) reclassified from accumulated other comprehensive loss to the consolidated statements of operations during 2022, 2021, and 2020, respectively, were offset by changes in cash flows associated with the underlying hedged transactions. Derivatives Not Designated As Hedging Instruments Consolidated Statements of Operations Classification For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Amount of net (losses) gains recognized in the Statements of Operations: Foreign currency forward exchange and other contracts $ ( 7,833 ) $ 2,872 $ ( 26,553 ) Other non-operating expense, net Foreign currency forward exchange and other contracts — 639 495 Cost of sales $ ( 7,833 ) $ 3,511 $ ( 26,058 ) The net (losses) gains recognized in the consolidated statements of operations during 2022, 2021, and 2020, respectively, were offset by foreign currency transaction gains and losses on the related derivative balances. Note 12— Commitments and Contingencies Licensing and Similar Agreements and Other Purchasing Obligations In the normal course of business, Mattel enters into contractual arrangements to obtain and protect Mattel's right to create and market certain products. These arrangements include royalty payments pursuant to licensing agreements that routinely contain provisions for guarantees or minimum expenditures during the term of the contract. Mattel also enters into contractual arrangements for commitments of future purchases of goods and services to ensure availability and timely delivery. Current and future commitments for guaranteed payments reflect Mattel's focus on expanding its product lines through alliances with businesses in other industries. Licensing and similar agreements in effect at December 31, 2022 contain provisions for future minimum payments as shown in the following table: Licensing and Similar Agreements (In thousands) 2023 $ 70,196 2024 63,633 2025 52,733 2026 1,138 2027 1,000 Thereafter — $ 188,700 Royalty expense for 2022, 2021, and 2020 was $ 230.8 million, $ 184.3 million, and $ 158.5 million, respectively. 85 The following table shows the future minimum obligations for purchases of inventory, services, and other items as of December 31, 2022: Other Purchase Obligations (In thousands) 2023 $ 301,889 2024 61,313 2025 40,074 2026 27,450 2027 24,587 Thereafter 6,062 $ 461,375 Insurance Mattel has a wholly-owned subsidiary, Far West Insurance Company, Ltd. ("Far West"), that was established to insure Mattel's workers' compensation, general, automobile, product liability, and property risks. For the year ended December 31, 2022, Far West insured the first $ 1.0 million per occurrence for workers' compensation risks, the first $ 0.5 million per occurrence for general and automobile liability risks, the first $ 2.0 million per occurrence for product liability losses occurring prior to February 1, 2020, and the first $ 5.0 million per occurrence for product liability risks thereafter, and up to $ 1.0 million per occurrence for property risks. Various insurance companies that have an "A" or better AM Best rating at the time the policies are purchased reinsured Mattel's risk in excess of the amounts insured by Far West. Mattel's liability for workers' compensation, general, automobile, product liability, and property claims at December 31, 2022 and 2021 totaled $ 14.2 million and $ 13.0 million, respectively, and is primarily included in other noncurrent liabilities in the consolidated balance sheets. Loss reserves are accrued based on Mattel's estimate of the aggregate liability for claims incurred. Litigation Litigation Related to Yellowstone do Brasil Ltda. In April 1999, Yellowstone do Brasil Ltda. (formerly known as Trebbor Informática Ltda.) filed a lawsuit against Mattel do Brasil before the 15th Civil Court of Curitiba, State of Parana, requesting the annulment of its security bonds and promissory notes given to Mattel do Brasil as well as damages due to an alleged breach of an oral exclusive distribution agreement between the parties relating to the supply and sale of toys in Brazil. Yellowstone's complaints sought alleged loss of profits plus an unspecified amount of damages. Mattel do Brasil filed its defenses to these claims and simultaneously presented a counterclaim for unpaid accounts receivable for goods supplied to Yellowstone. In April 2018, Mattel do Brasil entered into a settlement agreement to resolve this matter, but the settlement was later rejected by the courts, subject to a pending appeal by Mattel. In October 2018, the Superior Court of Justice issued a final ruling in favor of Yellowstone on the merits of Yellowstone's claims. Previously, the courts had ruled in Mattel's favor on its counterclaim. In October 2019, Mattel reached an agreement with Yellowstone's former counsel regarding payment of the attorney's fees portion of the judgment. In November 2019, Yellowstone initiated an action to enforce its judgment against Mattel, but did not account for an offset for Mattel's counterclaim. In January 2020, Mattel obtained an injunction, staying Yellowstone's enforcement action pending resolution of Mattel's appeal to enforce the parties' April 2018 settlement. As of December 31, 2022, Mattel assessed its probable loss related to the Yellowstone matter and has accrued a reserve, which is not material. 86 Litigation Related to the Fisher-Price Rock 'n Play Sleeper A number of putative class action lawsuits filed between April 2019 and October 2019 are pending against Fisher-Price, Inc. and/or Mattel, Inc. asserting claims for false advertising, negligent product design, breach of warranty, fraud, and other claims in connection with the marketing and sale of the Fisher-Price Rock 'n Play Sleeper (the "Sleeper"). In general, the lawsuits allege that the Sleeper should not have been marketed and sold as safe and fit for prolonged and overnight sleep for infants. The putative class action lawsuits propose nationwide and over 10 statewide consumer classes comprised of those who purchased the Sleeper as marketed as safe for prolonged and overnight sleep. The class actions have been consolidated before a single judge in the United States District Court for the Western District of New York for pre-trial purposes pursuant to the U.S. federal courts' Multi-District Litigation program. In June 2022, the court denied the plaintiffs' motion to certify damages and injunctive relief classes under New York law, but granted plaintiffs' request to certify a New York issue class to resolve two issues on a class-wide basis. In October 2022, the United States Court of Appeals for the Second Circuit denied plaintiffs' petition to appeal the denial of certification of the damages and injunctive relief classes. Thirty-two additional lawsuits filed between April 2019 and July 2022 are pending against Fisher-Price, Inc. and Mattel, Inc. alleging that a product defect in the Sleeper caused the fatalities of or injuries to thirty-six children. Several lawsuits have been settled and/or dismissed. Additionally, Fisher-Price, Inc. and/or Mattel, Inc. have also received letters from lawyers purporting to represent additional plaintiffs who have threatened to assert similar claims. In addition, a stockholder has filed a derivative action in the Court of Chancery for the State of Delaware (Kumar v. Bradley, et al., filed July 7, 2020) alleging breach of fiduciary duty and unjust enrichment related to the development, marketing, and sale of the Sleeper. The defendants in the derivative action are certain of Mattel's current and former officers and directors. In August 2020, the derivative action was stayed pending further developments in the class action lawsuits. In August 2021, a second similar derivative action was filed in the Court of Chancery for the State of Delaware (Armon v. Bradley, et al., filed August 30, 2021), which is also stayed. The lawsuits seek compensatory damages, punitive damages, statutory damages, restitution, disgorgement, attorneys' fees, costs, interest, declaratory relief, and/or injunctive relief. Mattel believes that the allegations in the lawsuits are without merit and intends to vigorously defend against them. Mattel also is in discussions with the US Consumer Product Safety Commission ("CPSC") regarding a request from the CPSC that Mattel increase the proportional cash refund available to consumers who participate in the recall of the Sleeper first announced in 2019. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time. Litigation and Investigations Related to Whistleblower Letter In December 2019 and January 2020, two stockholders filed separate complaints styled as class actions against Mattel, Inc., and certain of its former officers (the "Mattel Defendants"), as well as others, in the United States District Court for the Central District of California, alleging violations of U.S. federal securities laws. The two complaints were consolidated in April 2020 and an amended complaint was filed in May 2020. The complaints rely on the results of an investigation announced by Mattel in October 2019 regarding allegations in a whistleblower letter and claim that Mattel misled the market in several of its financial statements beginning in the third quarter of 2017. The lawsuits allege that the defendants' conduct caused the plaintiffs and other stockholders to purchase Mattel common stock at artificially inflated prices. The court granted plaintiffs' motion for class certification in September 2021. Following a mediation on October 25, 2021, the parties reached an agreement in principle to settle the class action lawsuits, which was later approved by the court. In February 2022, the Mattel Defendants paid $ 86 million in settlement of the claims against them, which was funded in full by Mattel's insurers. A single stockholder has appealed the court's approval of the settlement, and the appeal is now pending in the United States Court of Appeals for the Ninth Circuit. The settlement does not entail any admission of fault or liability by the Mattel Defendants, which the Mattel Defendants have expressly contested throughout the pendency of the litigation. 87 In addition, a stockholder filed a derivative action in the United States District Court for the District of Delaware (Moher v. Kreiz, et al., filed April 9, 2020) making allegations that are substantially identical to, or are based upon, the allegations of the class action lawsuits. The defendants in the derivative action are certain of Mattel's current and former officers and directors, and PricewaterhouseCoopers LLP ("PwC"), with Mattel, Inc. named as a nominal defendant. Subsequently, a nearly identical derivative action was filed by a different stockholder against the same defendants. The second lawsuit is styled as an amended complaint and replaces a complaint making unrelated allegations in a previously filed lawsuit already pending in Delaware federal court (Lombardi v. Kreiz, et al., amended complaint filed April 16, 2020). In May 2020, the Moher and Lombardi derivative actions were consolidated and stayed pending further developments in the class action lawsuits. In June 2021, a third similar derivative action was filed in the United States District Court for the District of Delaware (Chagnon v. Kreiz, et al., filed June 22, 2021). Seven additional derivative actions asserting similar claims were also filed in the Court of Chancery for the State of Delaware (Owen v. Euteneuer, et al., filed May 12, 2021; Andersen v. Georgiadis, et al., filed May 18, 2021; Armon v. Euteneuer, et al., filed June 29, 2021; Haag v. Euteneuer, et al., filed September 9, 2021; Shumacher v. Kreiz, et al., filed October 19, 2021; Mizell v. PricewaterhouseCoopers LLP, et al., filed October 29, 2021; and Behrens v. Euteneuer, et al., filed November 18, 2021). An additional derivative action was also filed in United States District Court for the Central District of California (City of Pontiac Police and Fire Retirement System v. PricewaterhouseCoopers LLP, et al. filed October 27, 2021). On March 11, 2022, the parties to the above actions engaged in a private mediation, after which defendants and certain of the plaintiffs reached an agreement in principle to settle the derivative claims asserted in certain of the actions. Pursuant to the terms of the stipulation of settlement, which was approved by the Delaware Chancery Court in November 2022, Mattel received a settlement payment in the amount of $ 7 million, less attorneys' fees, paid by Mattel's insurers and PwC, and further agreed to institute certain governance enhancements requested by the plaintiffs. The settlement did not entail any admission of fault or liability by any of the defendants. Following approval of the settlement, the various derivative cases were dismissed with prejudice by each court. Note 13— Segment Information Mattel designs, manufactures, and markets a broad variety of toy products worldwide, which are sold to its customers and directly to consumers. Segment Data Mattel's operating and reportable segments are: (i) North America, which consist of the United States and Canada; (ii) International; and (iii) American Girl. The North America and International segments sell products across categories, although some products are developed and adapted for particular international markets. The following tables present information regarding net sales, operating income (loss), depreciation and amortization, and assets by segment. The corporate and other expense category includes operating costs not allocated to individual segments, including charges related to incentive and share-based compensation, corporate headquarters functions managed on a worldwide basis, the impact of changes in foreign currency exchange rates on intercompany transactions, and certain severance and other restructuring costs. It is impracticable for Mattel to present net sales by categories, brands, or products, as trade discounts and other allowances are generally recorded in the financial accounting systems by customer. 88 For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Net Sales by Segment North America $ 2,987,831 $ 2,968,278 $ 2,426,480 International 2,220,001 2,219,189 1,903,550 American Girl 226,855 270,274 258,403 Net sales $ 5,434,687 $ 5,457,741 $ 4,588,433 Operating Income (Loss) by Segment (a) North America $ 765,867 $ 872,536 $ 621,859 International 295,840 349,952 272,395 American Girl 199 5,409 ( 14,090 ) 1,061,906 1,227,897 880,164 Corporate and other expense (b) ( 386,391 ) ( 498,335 ) ( 505,428 ) Operating Income 675,515 729,562 374,736 Interest expense 132,818 253,937 198,332 Interest (income) ( 9,398 ) ( 3,503 ) ( 3,945 ) Other non-operating expense, net (c) 47,760 8,364 2,692 Income Before Income Taxes $ 504,335 $ 470,764 $ 177,657 (a) Segment operating income (loss) included severance and restructuring expenses of $ 10.7 million, $ 2.9 million, and $ 5.7 million for 2022, 2021, and 2020, respectively, which were allocated to the North America, International, and American Girl segments. (b) Corporate and other expense included severance and restructuring charges of $ 26.2 million, $ 31.5 million, and $ 34.9 million for 2022, 2021, and 2020, respectively. Corporate and other expense also included (benefit) expenses related to inclined sleeper recall litigation of $( 0.3 ) million, $ 15.1 million, and $ 26.2 million for 2022, 2021, and 2020, respectively, and incentive and share-based compensation for all periods presented. (c) Other non-operating expense, net includes $ 45.4 million of currency translation losses were recognized as a result of Mattel's liquidation of its subsidiary in Argentina, which was substantially completed in 2022. For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Depreciation and Amortization by Segment North America $ 87,454 $ 86,308 $ 88,128 International 58,683 59,610 67,218 American Girl 10,631 12,508 13,438 156,768 158,426 168,784 Corporate and other 25,411 25,887 24,667 Depreciation and amortization $ 182,179 $ 184,313 $ 193,451 89 Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances. December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Assets by Segment North America $ 778,897 $ 784,836 $ 658,404 International 756,830 798,833 715,043 American Girl 58,833 52,168 40,414 1,594,560 1,635,837 1,413,861 Corporate and other 159,725 214,031 148,579 Accounts receivable and inventories, net $ 1,754,285 $ 1,849,868 $ 1,562,440 Geographic Information The tables below present information by geographic area. Net sales are attributed to countries based on location of customer. Long-lived assets include property, plant, and equipment, net, and right-of-use assets, net. For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Net Sales by Geographic Area North America Region (a) $ 3,214,686 $ 3,238,552 $ 2,684,883 International Region EMEA 1,324,435 1,375,463 1,132,531 Latin America 590,963 519,610 455,184 Asia Pacific 304,603 324,116 315,835 Total International Region 2,220,001 2,219,189 1,903,550 Net sales $ 5,434,687 $ 5,457,741 $ 4,588,433 December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Long-Lived Assets North America Region (b) $ 327,418 $ 366,519 $ 368,985 International Region 460,394 414,931 396,410 Consolidated total $ 787,812 $ 781,450 $ 765,395 (a) Net sales for the North America Region include net sales attributable to the United States of $ 3.04 billion, $ 3.07 billion, and $ 2.53 billion for 2022, 2021, and 2020, respectively. (b) Long-lived assets for the North America Region include long-lived assets attributable to the United States of $ 309.0 million, $ 343.7 million, and $ 329.3 million for 2022, 2021, and 2020, respectively. Major Customers In 2022, net sales to Mattel's three largest customers accounted for 43 % of worldwide consolidated net sales. In 2022, net sales to Walmart, Target, and Amazon were $ 0.95 billion, $ 0.76 billion, and $ 0.64 billion, respectively. In 2021, net sales to Mattel's three largest customers accounted for 46 % of worldwide consolidated net sales. In 2021, net sales to Walmart, Target, and Amazon were $ 1.17 billion, $ 0.74 billion, and $ 0.62 billion, respectively. In 2020, net sales to Mattel's three largest customers accounted for 47 % of worldwide consolidated net sales. In 2020, net sales to Walmart, Target, and Amazon were $ 1.07 billion, $ 0.62 billion, and $ 0.47 billion, respectively. The North America segment sells products to each of Mattel's three largest customers. The International segment sells products to Walmart and Amazon. The American Girl segment's net sales to Mattel's three largest customers were not material. 90 Note 14— Restructuring Charges Optimizing for Growth (formerly Capital Light) Mattel's Optimizing for Growth program is a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program (the "Program"). In February 2023, the Program was expanded to include additional initiatives, including actions to further streamline Mattel's organizational structure. In connection with the Program, Mattel recorded severance and other restructuring costs in the following cost and expense categories within operating income in the consolidated statements of operations: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Cost of sales (a) $ 10,685 $ 2,885 $ 5,656 Other selling and administrative expenses (b) 23,592 32,266 7,245 $ 34,277 $ 35,151 $ 12,901 (a) Severance and other restructuring costs recorded within cost of sales in the consolidated statements of operations are included in segment operating income (loss) in "Note 13 to the Consolidated Financial Statements—Segment Information." (b) Severance and other restructuring costs recorded within other selling and administrative expenses in the consolidated statements of operations are included in corporate and other expense in "Note 13 to the Consolidated Financial Statements—Segment Information." The following tables summarize Mattel's severance and other restructuring charges activity within operating income related to the Program: Liability at December 31, 2021 Charges (a) Payments/Utilization Liability at December 31, 2022 (In thousands) Severance $ 12,411 $ 14,729 $ ( 17,785 ) $ 9,355 Other restructuring charges 2,834 19,548 ( 18,842 ) 3,540 $ 15,245 $ 34,277 $ ( 36,627 ) $ 12,895 Liability at December 31, 2020 Charges (a) Payments/Utilization Liability at December 31, 2021 (In thousands) Severance 5,294 $ 17,979 $ ( 10,862 ) $ 12,411 Other restructuring charges 30 17,172 ( 14,368 ) 2,834 $ 5,324 $ 35,151 $ ( 25,230 ) $ 15,245 (a) Other restructuring charges consist primarily of expenses associated with the restructuring of commercial and corporate functions and consolidation of manufacturing facilities. As of December 31, 2022, Mattel had recorded cumulative severance and other restructuring charges related to the Program of approximately $ 165 million, which include approximately $ 73 million of non-cash charges, including $ 45.4 million recognized within non-operating expense, net, during 2022 related to the liquidation of Mattel's subsidiary in Argentina. Furthermore, cumulatively, in conjunction with previous actions taken under the Capital Light program, total expected cash expenditures are approximately $ 175 to $ 205 million and total expected non-cash charges are approximately $ 70 to $ 75 million. During 2021, in conjunction with the Program, Mattel completed the sale of a manufacturing plant based in Mexico, which included land and buildings, resulting in a pre-tax gain of $ 15.8 million. Other Cost Savings Actions In connection with Mattel's continued efforts to streamline its organizational structure and restore profitability, in May 2020, Mattel committed to a planned 4 % reduction in its non-manufacturing workforce. 91 During 2020, Mattel recorded severance and other restructuring charges of approximately $ 28 million, of which approximately $ 19 million related to actions taken to streamline Mattel's organizational structure and approximately $ 9 million related to actions associated with a prior cost savings program. Note 15— Income Taxes Consolidated pre-tax income consists of the following: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) U.S. operations $ 221,149 $ 9,612 $ ( 172,478 ) Foreign operations 283,186 461,152 350,135 Consolidated pre-tax income excluding equity method investments $ 504,335 $ 470,764 $ 177,657 The provision (benefit) for current and deferred income taxes consists of the following: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Current Federal $ — $ ( 9,819 ) $ — State 2,359 ( 4,060 ) ( 575 ) Foreign 62,278 81,899 78,870 64,637 68,020 78,295 Deferred Federal 55,805 ( 229,217 ) 1,164 State 2,440 ( 27,970 ) ( 481 ) Foreign 12,969 ( 231,214 ) ( 13,429 ) 71,214 ( 488,401 ) ( 12,746 ) Provision (benefit) for income taxes $ 135,851 $ ( 420,381 ) $ 65,549 92 Deferred income taxes are provided principally for tax credit carryforwards, net operating loss carryforwards, interest expense, research and development expenses, employee compensation-related expenses, right-of-use assets, lease liabilities, and certain other reserves that are recognized in different years for financial statement and income tax reporting purposes. Mattel's deferred income tax assets (liabilities) are composed of the following: December 31, 2022 December 31, 2021 (In thousands) Tax credit carryforwards $ 70,346 $ 100,575 Research and development expenses 45,640 27,996 Net operating loss carryforwards 94,977 124,792 Interest expense 79,862 90,671 Allowances and reserves 119,458 102,634 Deferred compensation 41,411 66,183 Postretirement benefits 22,852 31,841 Intangible assets 212,497 219,629 Lease liabilities 82,349 70,712 Other 43,885 46,382 Gross deferred income tax assets 813,277 881,415 Intangible assets ( 177,522 ) ( 189,021 ) Right-of-use assets ( 74,642 ) ( 63,206 ) Other ( 52,502 ) ( 40,781 ) Gross deferred income tax liabilities ( 304,666 ) ( 293,008 ) Deferred income tax asset valuation allowances ( 92,134 ) ( 101,489 ) Net deferred income tax assets $ 416,477 $ 486,918 Net deferred income tax assets are reported in the consolidated balance sheets as follows: December 31, 2022 December 31, 2021 (In thousands) Deferred income tax assets $ 471,672 $ 526,906 Other noncurrent liabilities ( 55,195 ) ( 39,988 ) $ 416,477 $ 486,918 As of December 31, 2022, Mattel had U.S. federal and foreign loss carryforwards totaling $ 307.7 million and U.S. federal, state, and foreign tax credit carryforwards of $ 70.3 million, which excludes carryforwards that do not meet the threshold for recognition in the financial statements. Utilization of these loss and tax credit carryforwards is subject to annual limitations. Mattel's loss and tax credit carryforwards expire in the following periods: Loss Carryforward Tax Credit Carryforward (In thousands) 2023–2027 $ 33,390 $ — Thereafter 114,825 45,624 No expiration date 159,453 24,722 Total $ 307,668 $ 70,346 93 Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the twelve months ended December 31, 2021, Mattel continued to see improved and sustained profitability, which presented objective positive evidence for the realizability of certain deferred tax assets. As such, based on the overall analysis of the positive and negative evidence in each tax jurisdiction, during 2021 Mattel released the valuation allowances related to certain U.S. federal, state, and foreign deferred tax assets, except for certain tax assets that are primarily expected to expire before utilization. Valuation allowance releases for the year ended December 31, 2021, resulted in recognition of a portion of these deferred tax assets and a benefit to Mattel's provision for income taxes of $ 540.8 million. As of December 31, 2021, Mattel's valuation allowances on its U.S. federal and state deferred tax assets and foreign deferred tax assets were approximately $ 18 million and $ 83 million, respectively. Changes in the valuation allowances in 2022 primarily related to utilization and expiration of tax attributes and functional currency fluctuations. As of December 31, 2022, Mattel's valuation allowances on its U.S. federal and state deferred tax assets and foreign deferred tax assets were approximately $ 18 million and $ 74 million, respectively. Differences between the provision for income taxes at the U.S. federal statutory income tax rate and the provision in the consolidated statements of operations are as follows: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Provision at U.S. federal statutory rate $ 105,910 $ 98,861 $ 37,308 Differences resulting from: Changes in valuation allowances — ( 540,803 ) 14,576 Foreign earnings taxed at different rates, including foreign losses without benefit 16,877 35,468 5,711 Tax related to pass-through income 5,340 2,487 2,409 Non deductible executive compensation 5,141 7,115 5,968 State and local taxes, net of U.S. federal benefit (expense) 5,027 ( 983 ) ( 1,056 ) Adjustments to previously accrued taxes ( 9,471 ) ( 19,101 ) 5,354 Change in indefinite reinvestment assertion 10,600 7,000 — Other ( 3,573 ) ( 10,425 ) ( 4,721 ) Provision (benefit) for income taxes $ 135,851 $ ( 420,381 ) $ 65,549 In assessing whether uncertain tax positions should be recognized in its financial statements, Mattel first determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more likely than not recognition threshold, Mattel presumes that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. For tax positions that meet the more likely than not recognition threshold, Mattel measures the amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Mattel recognizes unrecognized tax benefits in the first financial reporting period in which information becomes available indicating that such benefits will more likely than not be realized. Mattel records a reserve for unrecognized tax benefits for U.S. federal, state, local, and foreign tax positions related primarily to transfer pricing, tax credits claimed, tax nexus, and apportionment. For each reporting period, management applies a consistent methodology to measure unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant. Mattel's measurement of its reserve for unrecognized tax benefits is based on management's assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax audits, lapsing of applicable statutes of limitations, identification of new issues, and any administrative guidance or developments. 94 A reconciliation of the reserve for unrecognized tax benefits is as follows: For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Unrecognized tax benefits at January 1 $ 118,781 $ 140,309 $ 137,929 Increases for positions taken in current year 5,034 5,113 5,969 Increases for positions taken in a prior year 8,037 3,658 5,811 Decreases for positions taken in a prior year ( 7,315 ) ( 1,324 ) ( 3,127 ) Decreases for settlements with taxing authorities ( 1,236 ) ( 2,852 ) ( 3,410 ) Decreases for lapses in the applicable statute of limitations ( 9,244 ) ( 26,123 ) ( 2,863 ) Unrecognized tax benefits at December 31 $ 114,057 $ 118,781 $ 140,309 Of the $ 114.1 million of unrecognized tax benefits as of December 31, 2022, $ 113.2 million would impact the effective tax rate if recognized, and $ 0.9 million would result in an increase in the valuation allowance. Mattel recognized a decrease of interest and penalties of $ 5.3 million in 2022, a decrease of $ 1.5 million in 2021, and a decrease of $ 2.1 million in 2020, related to unrecognized tax benefits, which are reflected in the provision (benefit) for income taxes in the consolidated statements of operations. As of December 31, 2022, Mattel accrued $ 15.9 million in interest and penalties related to unrecognized tax benefits, all of which would impact the effective tax rate if recognized. As of December 31, 2021, Mattel accrued $ 21.2 million in interest and penalties related to unrecognized tax benefits, all of which would impact the effective tax rate if recognized. In the normal course of business, Mattel is regularly audited by U.S. federal, state, local, and foreign tax authorities. Mattel remains subject to IRS examination for the 2019 through 2022 tax years. Mattel files multiple state and local income tax returns and remains subject to examination in various jurisdictions, including California for the 2018 through 2022 tax years, New York for the 2019 through 2022 tax years, and Wisconsin for the 2015 through 2022 tax years. Mattel files multiple foreign income tax returns and remains subject to examination in various foreign jurisdictions including Hong Kong for the 2016 through 2022 tax years, Mexico for the 2017 through 2022 tax years, Netherlands for the 2018 through 2022 tax years, Cyprus for the 2019 through 2022 tax years, China for the 2010 through 2022 tax years, and United Kingdom for the 2017 through 2022 tax years. Based on the current status of U.S. federal, state, local, and foreign audits, Mattel believes it is reasonably possible that in the next 12 months, the total unrecognized tax benefits could decrease by $ 14.3 million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate settlement of certain issues with the applicable taxing authority could have a material impact on Mattel's consolidated financial statements. Mattel has recorded a deferred tax liability of $ 28.0 million and $ 19.0 million related to undistributed earnings of certain foreign subsidiaries as of December 31, 2022 and 2021, respectively. During 2022, Mattel recorded an approximately $ 9 million deferred tax liability on $ 2.60 billion of undistributed foreign earnings for which deferred taxes had not previously been recorded. Taxes have not been provided on approximately $ 2.40 billion of undistributed foreign U.S. GAAP retained earnings. The determination of any incremental tax liability associated with these earnings is not practicable due to the complexity of local country withholding rules and interactions with tax treaties, foreign exchange considerations, and the diversity of state income tax treatment on actual distribution. Mattel will remit reinvested earnings of its foreign subsidiaries for which a deferred tax liability has been recorded when Mattel determines that it is advantageous for business operations or cash management purposes. 95 Note 16— Supplemental Financial Information December 31, 2022 December 31, 2021 (In thousands) Inventories include the following: Finished goods $ 754,852 $ 600,784 Raw materials and work in process 139,212 176,400 $ 894,064 $ 777,184 Accrued liabilities include the following: Advertising and promotion $ 115,707 $ 179,687 Lease liabilities 75,297 73,752 Royalties 65,330 62,618 Incentive compensation 2,889 140,769 For the Year Ended December 31, 2022 December 31, 2021 December 31, 2020 (In thousands) Currency transaction losses included in: Operating income $ ( 15,544 ) $ ( 10,212 ) $ ( 8,780 ) Other non-operating expense, net ( 11,550 ) ( 8,224 ) ( 696 ) Currency transaction losses, net $ ( 27,094 ) $ ( 18,436 ) $ ( 9,476 ) Other selling and administrative expenses include the following: Design and development $ 195,451 $ 189,372 $ 189,494 Identifiable intangible asset amortization 37,602 38,039 38,925 Bad debt expense, net 18,279 1,202 9,149 96 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.