What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-02-22 · 186 added, 183 removed, 370 unchanged (50% of the section changed)

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Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and not associated with categories, brands, or individual products.

Mattel is a leading global toy company and owner of one of the strongest catalogs of children's and family entertainment franchises in the world.

Mattel creates innovative products and experiences that inspire, entertain, and develop children through play.

Mattel is focused on the following evolved strategy to grow its IP-driven toy business and expand its entertainment offering:

• Accelerate topline growth through scaling Mattel's portfolio, growing franchise brands, and advancing e-commerce and direct-to-consumer business, and increasing profitability by continuing to optimize operations;

• Expand entertainment offering to capture the full value of Mattel's IP in highly accretive business verticals, including content, consumer products, and digital experiences.

Mattel is a leading global toy and family entertainment company and owner of one of the most iconic brand portfolios in the world.

Mattel creates innovative products and experiences that inspire fans, entertain audiences, and develop children through play.

Mattel is focused on the following strategy to grow its IP-driven toy business and expand its entertainment offering:

• Grow toy business profitably through scaling Mattel's portfolio, optimizing operations, evolving demand creation, and growing franchise brands;

• Expand entertainment offering to capture the full value of Mattel's IP outside the toy aisle in highly accretive business verticals, by growing franchise brands and accelerating content, consumer products, and digital and live experiences.

Russia - Ukraine War

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While Mattel has no direct operations in Ukraine, its operations in Russia have experienced significant disruption.

Mattel has paused all shipments into Russia and net sales in these countries have declined during the year ended December 31, 2022.

Mattel's net sales in these two countries represented less than 1% and 2% of total net sales during the years ended December 31, 2022 and 2021, respectively.

In addition, as of December 31, 2022, Mattel held $69.2 million of cash in Russia.

While this cash can be used within Russia, its movement out of Russia is currently limited.

Mattel paused all shipments into Russia in early 2022, and net sales in these countries have declined during the years ended December 31, 2023 and 2022.

Mattel's net sales in these two countries represented less than 1% of total net sales during the years ended December 31, 2023 and 2022, respectively.

Recent Developments

Mattel's 2022 results were impacted by a challenging macro-economic environment, with quarterly results significantly affected by the volatility and timing of retailer inventory movements throughout the year.

Through the third quarter of 2022, Mattel had accelerated its inventory production to meet demand levels and reduce supply chain risk while retailers had also increased their inventory levels to replenish low inventory levels entering 2022 and to meet expected growth in demand ahead of the holiday season.

These factors resulted in strong growth in net sales during the nine months ended September 30, 2022.

However, consumer demand was lower than expected during the holiday season, and occurred later in the fourth quarter of 2022, which caused retailers to reduce replenishment orders as they managed their inventory.

These factors contributed to a decline in net sales during the fourth quarter of 2022 and elevated retailer inventory levels entering 2023, which are expected to have an unfavorable impact to net sales in 2023, particularly in the first half of the year.

Despite the challenging macro-economic environment, including the fourth quarter decline, Mattel's full year net sales were approximately flat compared to prior year, including an unfavorable impact from currency exchange rates of three percentage points.

Cost inflation also had an unfavorable impact to Mattel's gross margin during 2022, due to a combination of cost increases in raw materials, ocean freight, and other supply chain costs.

Mattel's margins have also been negatively impacted by inventory management efforts, including higher close-out sales and inventory obsolescence, and increased royalty expense, reflecting increased sales of licensed properties.

These negative factors were partially offset by favorable pricing actions and incremental realized savings from the Optimizing for Growth program.

To the extent cost inflation becomes more significant than anticipated, or Mattel is unable to offset higher costs through mitigating actions, inflation may have a material effect on Mattel's results of operations and financial condition

Although operating results were below expectations, Mattel continued to improve its financial position during 2022 as cash flows generated from operating activities were used to reduce leverage through $250 million of long-term debt repayments, while ending the year with $761 million in cash and equivalents.

Additionally, on February 8, 2023, Mattel announced the resumption of its share repurchase program, which has approximately $203 million of remaining authorized capacity to repurchase common stock.

To the extent the existing macro-economic environment remains challenging, or worsens, it may have a material effect on Mattel's results of operations and financial condition.

During 2023, Mattel made additional progress to execute its strategy to grow its IP-driven toy business and expand its entertainment offering, as it gained market share, achieved success with the Barbie movie, and further strengthened its financial position.

Mattel's full year net sales were comparable to the prior year, with meaningful sales growth in the second half of the year as shipping patterns realigned with historical trends.

Mattel's full year results included an improvement to operating cash flows and gross margin expansion, with significant contributions from cost savings actions, pricing, and benefits from the theatrical release of the Barbie movie during the second half of 2023.

Full year gross margin improved to 47.5% in 2023, from 45.7% in 2022.

Mattel ended the year with a cash balance of $1.26 billion, compared to $761.2 million in the prior year.

The increase in cash was the result of Mattel's cash flows from operations, which were $869.8 million in 2023, driven by improved working capital, partially offset by cash used for capital expenditures and share repurchases.

During 2023, Mattel resumed its share repurchase program and completed $203.0 million of share repurchases, exhausting the remaining share repurchase authorization under the program.

On February 5, 2024, the Board of Directors authorized a new $1.00 billion share repurchase program.

During February 2024, Mattel executed $100.0 million of share repurchases under the new program.

Additionally, in February 2024, Mattel announced the Optimizing for Profitable Growth program, a multi-year cost savings program that follows the Optimizing for Growth program and is designed to achieve further efficiency and cost savings opportunities, primarily within Mattel's global supply chain, including its manufacturing footprint, with targeted annual gross cost savings of $200.0 million between 2024 and 2026.

Mattel is operating in a macro-economic environment that may impact consumer demand.

To the extent the macro-economic environment worsens, it may have a material effect on Mattel's results of operations and financial condition.

Refer to Part I, Item 1A "Risk Factors" for further discussion regarding potential impacts on Mattel's business.

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Consolidated Results

The following table includes Mattel's consolidated results for 2022 and 2021:

The following table presents Mattel's consolidated results for 2023 and 2022:

For the Year Ended Year/Year Change

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Interest (income) (25.2) -0.5 % (9.4) -0.2 % 169 % (30)

Other non-operating expense, net 47.8 8.4

Other non-operating (income) expense, net (2.3) 47.8

Income before income taxes 465.4 8.6 % 504.3 9.3 % -8 % (70)

Provision (benefit) for income taxes 135.9 (420.4)

(Income) from equity method investment (25.4) (11.8)

Provision for income taxes 269.5 135.9

(Income) from equity method investments (18.4) (25.4)

Net income $ 214.4 3.9 % $ 393.9 7.2 % -46 % (330)

Net sales in 2022 were $5.43 billion, a decrease of $23.1 million as compared to $5.46 billion in 2021.

The decrease in net sales was the result of declines in gross billings of $33.3 million, partially offset by declines in sales adjustments of $10.3 million.

Gross billings represents amounts invoiced to a customer and does not include the impact of sales adjustments, such as trade discounts and other allowances.

Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial records at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products.

The following table provides a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand for 2022 and 2021:

Net sales in 2023 were $5.44 billion, relatively flat as compared to $5.43 billion in 2022.

Net sales were impacted by higher gross billings of $53.6 million, which were partially offset by increases in sales adjustments of $47.0 million.

Gross billings represent amounts invoiced to a customer and do not include the impact of sales adjustments, such as trade discounts and other allowances.

Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products.

The following tables provide a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for 2023 and 2022:

For the Year Ended % Change as

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Hot Wheels 1,432.4 1,251.4 14 % 2 %

Fisher-Price and Thomas & Friends 1,033.7 1,128.2 -8 % -2 %

Fisher-Price 852.6 935.9 -9 % 1 %

Other 2,279.0 2,370.4 -4 % 1 %

Gross Billings $ 6,101.8 $ 6,048.3 1 % 1 %

Gross billings were $6.05 billion in 2022, a decrease of $33.3 million, or 1%, as compared to $6.08 billion in 2021, with an unfavorable impact from changes in currency exchange rates of four percentage points.

The decrease in gross billings was due to lower billings of Dolls and Infant, Toddler, and Preschool, partially offset by higher billings of Vehicles and Action Figures, Building Sets, Games, and Other.

Dolls gross billings decreased 9%, of which 8% was due to lower billings of Barbie products, 2% was due to lower billings of American Girl products, and 2% was due to lower billings of Spirit products.

This was partially offset by higher billings of Monster High products of 3% and higher billings of Disney Princess and Frozen products of 1%.

Infant, Toddler, and Preschool gross billings decreased 8%, of which 7% was due to lower billings of Fisher-Price and Thomas & Friends products.

Vehicles gross billings increased 16%, of which 15% was due to higher billings of Hot Wheels products due to positive brand momentum and the successful launches of remote control vehicles and Hot Wheels Skate finger boards.

Action Figures, Building Sets, Games, and Other gross billings increased 7%, of which 11% was due to higher billings of Jurassic World products and 10% was due to higher billings of Lightyear products, as a result of their theatrical releases during the second quarter of 2022.

This was partially offset by lower billings of other Action Figures products of 7%, and lower billings of Games products of 5%.

Sales adjustments represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise.

Gross billings were $6.10 billion in 2023, an increase of $53.6 million, or 1%, as compared to $6.05 billion in 2022, with a favorable impact from changes in currency exchange rates of one percentage point.

The increase in gross billings was due to higher billings of Dolls and Vehicles, partially offset by lower billings of Action Figures, Building Sets, Games, and Other and Infant, Toddler, and Preschool.

Dolls gross billings increased 15%, of which 10% was due to higher billings of Disney Princess and Disney Frozen products, 6% was due to higher billings of Monster High products, and 2% was due to higher billings of Barbie , driven primarily by licensing revenues associated with the release of the Barbie movie.

Infant, Toddler, and Preschool gross billings decreased 10%, of which 7% was due to lower billings of Fisher-Price products.

Vehicles gross billings increased 13%, of which 12% was due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings decreased 24%, of which 14% was due to lower billings of Jurassic World products and 9% was due to lower billings of Lightyear products, following their theatrical releases during the second quarter of 2022.

Sales adjustments generally represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and 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.

Sales adjustments decreased to $613.6 million in 2022, as compared to $623.9 million in 2021, due to lower gross billings.

Sales adjustments as a percentage of net sales was relatively flat at 11.3% in 2022, as compared to 11.4% in 2021.

Additionally, sales adjustments may include foreign currency transaction gains and losses from the remeasurement of accounts receivable denominated in currencies that are different from the relevant entity's functional currency.

Sales adjustments increased to $660.6 million in 2023, as compared to $613.6 million in 2022.

Sales adjustments as a percentage of net sales increased to 12.1% in 2023 from 11.3% in 2022.

The increase to sales adjustments as a percentage of net sales was primarily due to higher promotional activities among key retailers, as well as a shift in customer mix resulting in a higher proportion of sales with higher average sales adjustment rates.

Cost of Sales

Cost of sales increased by $122.3 million, or 4%, to $2.95 billion in 2022 from $2.83 billion in 2021.

Within cost of sales, product and other costs increased by $65.6 million, or 3%, to $2.42 billion in 2022 from $2.35 billion in 2021;

royalty expense increased by $46.5 million, or 25%, to $230.8 million in 2022 from $184.3 million in 2021, and freight and logistics expenses increased by $10.2 million, or 3%, to $302.6 million in 2022 from $292.4 million in 2021.

Gross margin decreased to 45.7% in 2022 from 48.1% in 2021.

The decrease in gross margin was primarily due to cost inflation of 380 basis points, inventory management efforts of 110 basis points, including higher close-out sales and inventory obsolescence, and higher royalty expense and other of 60 basis points.

These negative factors were partially offset by favorable pricing actions of 200 basis points and incremental realized savings from the Optimizing for Growth program of 130 basis points.

Cost of sales decreased by $95.8 million, or 3%, to $2.86 billion in 2023 from $2.95 billion in 2022.

Within cost of sales, product and other costs decreased by $139.3 million, or 6%, to $2.28 billion in 2023 from $2.42 billion in 2022, freight and logistics expenses increased by $24.4 million, or 8%, to $327.0 million in 2023 from $302.6 million in 2022, and royalty expense increased by $19.0 million, or 8%, to $249.8 million in 2023 from $230.8 million in 2022.

Gross margin increased to 47.5% in 2023 from 45.7% in 2022.

The increase in gross margin was primarily due to incremental realized savings from the Optimizing for Growth program of 130 basis points, favorable mix of 110 basis points, which primarily related to the release of the Barbie movie, favorable pricing, net of higher sales adjustments of 100 basis points, and cost deflation of 60 basis points, partially offset by unfavorable fixed cost absorption due to lower production volume and other supply chain costs of 220 basis points.

Advertising and Promotion Expenses

Advertising and promotion expenses primarily consist of:

(i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs, (iii) retail advertising costs, which include consumer direct catalogs, and (iv) generic advertising costs, which include trade show costs.

and (iv) generic advertising costs, which include trade show costs.

Advertising and promotion expenses as a percentage of net sales were relatively flat in 2023 at 9.6% in 2023, compared to 9.8% in 2022.

Other Selling and Administrative Expenses

Other selling and administrative expenses were $1.27 billion in 2022, as compared to $1.35 billion in 2021.

The decrease in other selling and administrative expenses was primarily due to lower incentive compensation of $128.2 million and incremental realized savings from the Optimizing for Growth program of $30.9 million, partially offset by market-related pay increases of $50.8 million and increases in bad debt expense of $17.7 million.

Mattel's other selling and administrative expenses will increase in 2023 if incentive compensation expenses return to historical levels.

Other selling and administrative expenses were $1.50 billion, or 27.5% of net sales, in 2023, as compared to $1.27 billion, or 23.4% of net sales, in 2022.

The increase in other selling and administrative expenses was primarily due to higher incentive compensation of $152.2 million, market-related pay increases of $38.1 million, higher severance and restructuring charges of $34.7 million, and a prior year gain on sale of assets of $26.9 million, partially offset by incremental realized savings from the Optimizing for Growth program of $46.0 million.

Interest Expense

Interest expense was $123.8 million in 2023, as compared to $132.8 million in 2022.

The decrease in interest expense was primarily due to a loss on extinguishment of debt of $101.7 million as a result of the redemption of the 6.75% 2017/2018 Senior Notes due December 2025 (the "2025 Notes") in 2021 and lower interest expense of $19.3 million in 2022 due to the refinancing and repayment of the 2025 Notes in 2021.

Other Non-Operating Expense, Net

Other non-operating expense, net was $47.8 million in 2022, as compared to $8.4 million in 2021.

In the fourth quarter of 2022, Mattel substantially completed the liquidation of its subsidiary in Argentina and recognized $45.4 million of currency translation adjustments as a loss in other non-operating expense, net, as a result of the liquidation.

The decrease was primarily due to lower interest expense of $8.2 million in 2023 due to the $250.0 million repayment of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022.

Interest (Income)

Interest income increased to $25.2 million in 2023, as compared to $9.4 million in 2022, due to higher average interest rates on invested cash in 2023.

Other Non-Operating (Income) Expense, Net

Other non-operating income, net was $2.3 million in 2023, as compared to other non-operating expense, net of $47.8 million in 2022.

In the fourth quarter of 2022, the liquidation of Mattel's subsidiary in Argentina was substantially completed, and Mattel recognized its cumulative currency translation adjustments of $45.4 million as a loss in other non-operating expense, net.

See Item 7A "Quantitative and Qualitative Disclosures About Market Risk—Argentina Operations" for more information.

Provision (Benefit) for Income Taxes

Mattel's provision for income taxes was $135.9 million in 2022, as compared to a benefit from income taxes of $420.4 million in 2021.

The 2021 benefit from income taxes included a $540.8 million release of valuation allowances related to U.S.

federal, state, and certain foreign deferred tax assets and a $19.1 million tax benefit related to reassessments of prior year's tax liabilities based on the status of audits and settlements in various jurisdictions.

Provision for Income Taxes

Mattel's provision for income taxes was $269.5 million in 2023, as compared to $135.9 million in 2022.

In 2023, Mattel completed an intra-group transfer of certain IP rights, resulting in a net tax expense of $161.4 million related to the write-down of certain foreign deferred tax assets and the establishment of certain U.S.

deferred tax assets.

The 2023 income tax provision included a net tax expense of $9.9 million, including $19.2 million related to reassessments of prior year's tax liabilities based on the status of audits and settlements in various jurisdictions, partially offset by $9.2 million of benefits from the expiration of certain statutes of limitations.

The 2022 income tax provision included an $11.0 million tax expense related to certain foreign subsidiaries' deferred tax liabilities of undistributed earnings and a $15.2 million tax benefit related to reassessments of prior year's tax liabilities based on the status of audits and settlements in various jurisdictions.

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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.

Changes in the valuation allowances in 2022 primarily related to utilization and expiration of tax attributes and 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 $16 million and $74 million, respectively.

Changes in the valuation allowances in 2022 primarily related to functional currency fluctuations.

Changes in the valuation allowances in 2023 primarily related to changes in the assessment of the future realizability of certain deferred tax assets, utilization and expiration of tax attributes, and currency fluctuations.

As of December 31, 2023, Mattel's valuation allowances on its U.S.

federal and state deferred tax assets and foreign deferred tax assets were approximately $14 million and $71 million, respectively.

As of December 31, 2023 and 2022, Mattel had recorded net deferred tax assets of $243.1 million and $416.5 million, respectively.

The Organization for Economic Co-operation and Development (OECD) reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two.

Many countries continue to announce changes in their tax laws and regulations based on the Pillar Two rules.

Mattel is continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available.

Some of the legislative changes could impact Mattel's effective tax rate and tax liabilities.

When and how these laws and regulations are adopted or enacted by various countries in which Mattel operates could increase tax complexity and uncertainty and may adversely affect Mattel's worldwide effective tax rate, income tax expense and cash flows.

Segment Results

North America Segment

The following table provides a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for 2022 and 2021:

The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for 2023 and 2022:

For the Year Ended % Change as

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Hot Wheels 690.8 617.9 12 % — %

Fisher-Price and Thomas & Friends 635.1 685.5 -7 % — %

Fisher-Price 532.0 584.5 -9 % — %

Other 1,155.1 1,207.3 -4 % — %

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Gross billings were $3.22 billion in 2023, an increase of $32.2 million, or 1%, as compared to $3.19 billion in 2022.

The increase in the North America segment gross billings was due to higher billings of Vehicles and Action Figures, Building Sets, Games, and Other, partially offset by lower billings of Dolls and Infant, Toddler, and Preschool.

Dolls gross billings decreased 7%, of which 13% was due to lower billings of Barbie products, partially offset by higher billings of Monster High products of 5%.

Infant, Toddler, and Preschool gross billings decreased 8%, of which 7% was due to lower billings of Fisher-Price and Thomas & Friends products.

Vehicles gross billings increased 16%, of which 14% was due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 8%, of which 13% was due to higher billings of Jurassic World products and 9% was due to higher billings of Lightyear products, as a result of their theatrical releases during the second quarter of 2022.

This was partially offset by lower billings of other Action Figures products of 7% and lower billings of Plush products of 6%.

Sales adjustments increased to $198.3 million in 2022, as compared to $186.6 million in 2021, due to higher gross billings.

Sales adjustments as a percentage of net sales was relatively consistent at 6.6% in 2022, as compared to 6.3% in 2021.

Cost of sales increased by $90.6 million, or 6%, to $1.65 billion in 2022 from $1.56 billion in 2021, as compared to a 1% increase in net sales, primarily due to an increase of product and other costs of $58.0 million and higher royalty expense of $28.3 million.

Gross margin in 2022 decreased to 44.9% in 2022 from 47.4% in 2021, due to cost inflation of 370 basis points, higher royalty expense and other of 140 basis points, and inventory management efforts of 90 basis points, including higher close-out sales and inventory obsolescence.

These negative factors were partially offset by favorable pricing actions of 210 basis points and incremental realized savings from the Optimizing for Growth program of 140 basis points.

North America segment operating income was $765.9 million in 2022, as compared to segment operating income of $872.5 million in 2021, due to lower gross profit.

The increase in the North America segment gross billings was primarily due to higher billings of Dolls and Vehicles, partially offset by lower billings of Action Figures, Building Sets, Games, and Other and Infant, Toddler, and Preschool.

Dolls gross billings increased 23%, of which 11% was due to higher billings of Disney Princess and Disney Frozen products, 7% was due to higher billings of Barbie , driven primarily by licensing revenues associated with the release of the Barbie movie, and 5% was due to higher billings of Monster High products.

Infant, Toddler, and Preschool gross billings decreased 11%, of which 7% was due to lower billings of Fisher-Price products and 2% was due to lower billings of Power Wheels products.

Vehicles gross billings increased 10%, due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings decreased 22%, of which 14% was due to lower billings of Jurassic World products and 8% was due to lower billings of Lightyear products, following their theatrical releases during the second quarter of 2022.

Sales adjustments increased to $215.1 million in 2023, as compared to $198.3 million in 2022.

Sales adjustments as a percentage of net sales increased to 7.2% in 2023 from 6.6% in 2022.

The increase to sales adjustments as a percentage of net sales was primarily due to higher promotional activities.

Cost of sales decreased by $27.5 million, or 2%, to $1.63 billion in 2023 from $1.65 billion in 2022, as compared to a 1% increase in net sales, primarily due to a decrease in product and other costs of $60.5 million, partially offset by an increase in freight and logistics expenses of $24.5 million.

Gross margin increased to 45.9% in 2023 from 44.9% in 2022, primarily due to incremental realized savings from the Optimizing for Growth program of 130 basis points, favorable mix of 110 basis points, which primarily related to the release of the Barbie movie, cost deflation of 60 basis points, and favorable pricing, net of higher sales adjustments of 50 basis points, partially offset by unfavorable fixed cost absorption and other supply chain costs of 250 basis points.

North America segment operating income was $793.4 million in 2023, as compared to segment operating income of $765.9 million in 2022, due to higher gross profit of $42.9 million, partially offset by higher other selling and administrative expenses of $15.9 million.

International Segment

For the Year Ended % Change as

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Segment Operating Income 299.1 295.8 1 %

Net sales for the International segment in 2022 were $2.22 billion, relatively flat as compared to 2021.

Declines in gross billings of $20.6 million were offset by declines in sales adjustments of $21.4 million.

Net sales for the International segment in 2023 were $2.23 billion, relatively flat as compared to $2.22 billion in 2022.

Net sales were impacted by higher gross billings of $41.1 million, which were partially offset by increases in sales adjustments of $30.4 million.

For the Year Ended % Change as

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Hot Wheels 741.6 633.5 17 % 4 %

Fisher-Price and Thomas & Friends 398.7 442.7 -10 % -6 %

Fisher-Price 320.6 351.4 -9 % 4 %

Other 909.8 929.1 -2 % 3 %

Gross Billings $ 2,669.4 $ 2,628.2 2 % 4 %

Gross billings for the International segment were $2.63 billion in 2022, a decrease of $20.6 million, or 1%, as compared to $2.65 billion in 2021, with an unfavorable impact from changes in currency exchange rates of eight percentage points.

The decrease in International segment gross billings was due to lower billings of Dolls and Infant, Toddler, and Preschool, partially offset by higher billings of Vehicles and Action Figures, Building Sets, Games, and Other.

Dolls gross billings decreased 10%, of which 6% was due to lower billings of Barbie products, 2% was due to lower billings of Spirit products and 2% was due to lower billings of Enchantimals products.

Infant, Toddler, and Preschool gross billings decreased 9%, due to lower billings of Fisher-Price and Thomas & Friends products.

Vehicles gross billings increased 15% due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 5%, of which 10% was due to higher billings of Lightyear products and 8% was due to higher billings of Jurassic World products, in each case as a result of their theatrical releases during the second quarter of 2022.

This was partially offset by lower billings of other Action Figures products of 7% and lower billings of Games products of 7%.

Sales adjustments decreased to $408.2 million in 2022, as compared to $429.6 million in 2021, due to lower gross billings.

Sales adjustments as a percentage of net sales was 18.4% in 2022, as compared to 19.4% in 2021.

The decline was due to changes in the mix of sales as there were lower sales in markets with higher average sales adjustment rates.

Cost of sales increased by $63.2 million, or 5%, to $1.21 billion in 2022 from $1.15 billion in 2021, as compared to relatively flat net sales, primarily due to an increase of product and other costs of $35.8 million, higher royalty expense of $17.7 million, reflecting increased sales of licensed properties, and higher freight and logistics expenses of $9.7 million.

Gross margin in 2022 decreased to 45.6% in 2022 from 48.2% in 2021, due to cost inflation of 420 basis points, inventory management efforts of 160 basis points, including higher close-out sales and inventory obsolescence, and higher royalty expense and other of 30 basis points.

These negative factors were partially offset by favorable pricing actions of 210 basis points and incremental realized savings from the Optimizing for Growth program of 130 basis points.

International segment operating income was $295.8 million in 2022, as compared to segment operating income of $350.0 million in 2021, due to lower gross profit, partially offset by lower advertising and promotion expenses of $17.8 million.

Gross billings for the International segment were $2.67 billion in 2023, an increase of $41.1 million, or 2%, as compared to $2.63 billion in 2022, with a favorable impact from changes in currency exchange rates of four percentage points.

The increase in the International segment gross billings was due to higher billings of Dolls and Vehicles, partially offset by lower billings of Action Figures, Building Sets, Games and Other and Infant, Toddler, and Preschool.

Dolls gross billings increased 13%, of which 12% was due to higher billings of Disney Princess and Disney Frozen products and 8% was due to higher billings of Monster High products, partially offset by lower billings of Enchantimals products of 4% and lower billings of Barbie products of 2%.

Infant, Toddler, and Preschool gross billings decreased 9%, of which 7% was due to lower billings of Fisher-Price products.

Vehicles gross billings increased 16%, of which 15% was due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings decreased 26%, of which 13% was due to lower billings of Jurassic World products and 9% was due to lower billings of Lightyear products, following their theatrical releases during the second quarter of 2022, and 2% was due to lower billings of other Action Figures products.

Sales adjustments increased to $438.6 million in 2023, as compared to $408.2 million in 2022.

Sales adjustments as a percentage of net sales increased to 19.7% in 2023 from 18.4% in 2022.

The increase to sales adjustments as a percentage of net sales was due to higher promotional activities among key retailers and higher net foreign currency transaction losses from the remeasurement of certain accounts receivable denominated in foreign currencies in 2023 of $11.4 million.

Cost of sales increased by $20.8 million, or 2%, to $1.23 billion in 2023 from $1.21 billion in 2022, as compared to a slight increase in net sales, primarily due to an increase of product and other costs of $11.9 million and higher royalty expense of $10.2 million.

Gross margin in 2023 decreased to 44.7% from 45.6% in 2022, primarily due to unfavorable foreign currency exchange of 320 basis points and unfavorable fixed cost absorption from lower production volumes and other supply chain costs of 320 basis points.

This was partially offset by favorable pricing actions, net of higher sales adjustments of 170 basis points, incremental realized savings from the Optimizing for Growth program of 150 basis points, favorable mix of 130 basis points, which primarily related to the release of the Barbie movie, and cost deflation of 100 basis points.

International segment operating income was $299.1 million in 2023, as compared to segment operating income of $295.8 million in 2022, primarily due to lower other selling and administrative expenses of $7.6 million and lower advertising and promotion expenses of $5.7 million, offset by lower gross profit of $10.0 million.

American Girl Segment

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Net Sales $ 207.2 $ 226.9 -9 % — %

Segment Operating Income 0.2 5.4 N/M

Segment Operating (Loss) Income (5.7) 0.2 N/M

N/M - Not meaningful

Net sales for the American Girl segment in 2023 were $207.2 million, a decrease of $19.6 million, or 9%, as compared to $226.9 million in 2022.

The decrease in net sales was the result of declines in gross billings of $44.0 million or 16%, to $234.0 million in 2022 from $277.9 million in 2021.

The decrease was primarily due to lower billings of 2022 Girl of the Year dolls of $14.5 million and lower billings of historical character dolls products of $13.3 million.

Sales adjustments decreased to $7.1 million in 2022, as compared to $7.6 million in 2021, due to lower gross billings.

Sales adjustments as a percentage of net sales was relatively consistent at 3.1% in 2022, as compared to 2.8% in 2021.

The decrease in net sales was the result of declines in gross billings of $19.8 million.

Gross billings decreased to $214.2 million in 2023 from $234.0 million in 2022, primarily due to lower billings of Truly Me dolls of $20.4 million.

Sales adjustments were $7.0 million in 2023, as compared to $7.1 million in 2022.

Cost of sales decreased by $8.2 million, or 8%, to $97.9 million in 2023 from $106.1 million in 2022, as compared to a 9% decrease in net sales, primarily due to a decrease of product and other costs of $9.8 million.

Gross margin in 2022 decreased to 53.2% in 2022 from 56.8% in 2021, due to cost inflation of 230 basis points, royalty expense and other of 170 basis points, and inventory obsolescence of 30 basis points, partially offset by incremental realized savings from the Optimizing for Growth program of 80 basis points.

American Girl segment operating income was $0.2 million in 2022, as compared to segment operating income of $5.4 million in 2021, due to lower gross profit, partially offset by lower other selling and administrative expenses of $25.0 million, including $15.2 million from a gain on the sale of the American Girl corporate offices and distribution center during 2022.

Gross margin in 2023 decreased to 52.8% from 53.2% in 2022, primarily due to cost inflation of 130 basis points, partially offset by incremental realized savings from the Optimizing for Growth program of 70 basis points and favorable product mix and other of 20 basis points.

American Girl segment operating loss was $5.7 million in 2023, as compared to segment operating income of $0.2 million in 2022, primarily due to lower gross profit of $11.4 million, offset by lower advertising and promotion expenses of $3.2 million and lower other selling and administrative expenses of $2.3 million.

The decrease in other selling and administrative expenses was primarily due to lower rent expense of $7.9 million and lower miscellaneous other selling and administrative expenses, partially offset by a gain on the sale of the American Girl corporate office and distribution center in the prior year of $15.2 million, which reduced other selling and administrative expense in 2022.

Cost Savings Programs

Optimizing for Growth (formerly Capital Light)

In February 2021, Mattel announced the Optimizing for Growth program, a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program (the "Program"), which had targeted annual gross cost savings of $250 million from actions expected to be completed beginning 2021 through 2023.

In February 2023, Mattel expanded the Program and increased the targeted annual gross cost savings from $250 million to $300 million, reflecting additional initiatives, including actions to further streamline Mattel's organizational structure.

The additional initiatives are estimated to result in incremental employee severance charges of $10 million to $15 million during 2023.

Of the $300 million in targeted gross cost savings, approximately 60% is expected to benefit cost of sales, 30% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses.

Estimated total cash expenditures associated with the Program, excluding previous actions taken under the Capital Light program, are expected to be approximately $135 to $165 million.

Mattel estimates the cost of actions for the Program, excluding previous actions taken under the Capital Light program, to be as follows:

Optimizing for Growth - Actions Estimate of Cost

Employee severance $40 to $50 million

Real estate/supply chain optimization and other restructuring costs $25 to $35 million

Non-cash charges (a) $55 to $60 million

Total estimated severance and restructuring costs $120 to $145 million

Information technology enhancements and other investments $70 to $80 million

Total estimated actions $190 to $225 million

In February 2021, Mattel announced the Optimizing for Growth program (the "OFG program"), a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program, which had targeted annual gross cost savings of $250 million from actions expected to be completed beginning 2021 through 2023.

In February 2023, Mattel expanded the OFG program and increased the targeted annual gross cost savings from $250 million to $300 million, reflecting additional initiatives, including actions to further streamline Mattel's organizational structure.

As of December 31, 2023, Mattel concluded the OFG program and, excluding previous actions taken under the Capital Light program, achieved annualized gross cost savings of approximately $343 million.

Of the $343 million in gross cost savings, approximately 60% benefits cost of sales, 30% benefits other selling and administrative expenses, and 10% benefits advertising and promotion expenses.

Total cash expenditures associated with the OFG program, excluding previous actions taken under the Capital Light program, were approximately $170 million.

The cost of actions for the OFG program, excluding previous actions taken under the Capital Light program, were as follows:

Optimizing for Growth – Actions Total Cost

Employee severance $55 million

Real estate/supply chain optimization and other restructuring costs $33 million

Non-cash charges (a) $58 million

Total severance and restructuring costs $146 million

Information technology enhancements and other investments $82 million

Total actions $228 million

(a) Non-cash charges include $45.4 million of currency translation losses that were recognized within other non-operating expense, net, in the consolidated statement of operations during 2022 as a result of Mattel's liquidation of its subsidiary in Argentina, which was substantially completed in 2022.

Cumulatively, in conjunction with previous actions taken under the Capital Light program prior to 2021, targeted annual gross cost savings for the Program are $375 million by 2023, with total expected cash expenditures of approximately $175 to $205 million, and total expected non-cash charges of $70 to $75 million.

Of the $375 million in targeted gross cost savings, approximately 65% is expected to benefit cost of sales, 25% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses.

In connection with the Program, Mattel has recorded severance and other restructuring costs in the following cost and expense categories within operating income in the consolidated statements of operations:

Cumulatively, in conjunction with previous actions taken under the Capital Light program prior to 2021, Mattel achieved annual gross cost savings for the OFG program of $418 million as of December 31, 2023.

The total cash expenditures were approximately $208 million, and total non-cash charges were $73 million.

Of the $418 million annual gross cost savings, approximately 70% benefits cost of sales, 20% benefits other selling and administrative expenses, and 10% benefits advertising and promotion expenses.

In connection with the OFG 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

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$ 31.0 $ 34.3 $ 35.2

(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".

(a) Severance and other restructuring costs recorded within cost of sales in the consolidated statements of operations are included in segment operating income in "Note 14 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 14 to the Consolidated Financial Statements—Segment Information."

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.

As of December 31, 2023, Mattel had recorded cumulative severance and other restructuring charges related to the OFG program, including previous actions taken under the Capital Light program, of approximately $196 million, which included approximately $73 million of non-cash charges.

Non-cash charges include $45.4 million recorded in non-operating expense, net, during 2022, related to the liquidation of Mattel's subsidiary in Argentina.

Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $280 million, which represents approximately 80% benefit to cost of sales, 15% benefit to other selling and administrative expenses, and 5% benefit to advertising and promotion expenses, as of December 31, 2022, in connection with the Program.

During 2021, in conjunction with the OFG 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.

Optimizing for Profitable Growth

On February 7, 2024, Mattel announced the Optimizing for Profitable Growth program, a multi-year cost savings program that follows the OFG program and is designed to achieve further efficiency and cost savings opportunities, primarily within Mattel’s global supply chain, including its manufacturing footprint (the "OPG program").

The OPG program includes cost savings actions in connection with discontinuing production at a plant in China as previously announced in the third quarter of 2023, that were not included in the OFG program.

Targeted annual gross cost savings from actions associated with the OPG program, which are expected to be completed beginning 2024 through 2026, are $200 million.

Of the $200 million in targeted annual gross costs savings, approximately 70% is expected to benefit cost of sales and 30% is expected to benefit other selling and administrative expenses.

Total expected cash expenditures under the OPG program are expected to be between $130 and $165 million.

The costs associated with the OPG program are expected to include the following:

Optimizing for Profitable Growth – Actions Estimate of Cost

Employee severance $90 to $105 million

Other restructuring costs $10 to $20 million

Non-cash charges up to $5 million

Total estimated severance and restructuring costs (a) $100 to $130 million

Investments $30 to $40 million

Total estimated actions $130 to $170 million

(a) Total estimated costs include $30 to $35 million of severance and other restructuring costs and up to $5 million of non-cash charges associated with the discontinuing of production at a manufacturing plant in China, which was previously announced during the third quarter of 2023.

As of December 31, 2023, in connection with the OPG program, Mattel recorded $25.3 million of severance costs within other selling and administrative expense in the consolidated statements of operations and is included in corporate and other expense in " Note 14 to the Consolidated Financial Statements—Segment Information.

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.

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.

Mattel executed other cost savings actions in 2023 not included in the OFG program or the OPG program to streamline its organizational structure.

In connection with these actions, Mattel recorded severance expense of $3.4 million within other selling and administrative expenses in the consolidated statement of operations.

See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Provision for Income Taxes."

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Such obligations may include capital expenditures, debt service, future royalty payments pursuant to licensing agreements, future inventory and service purchases, and required cash contributions and payments related to benefit plans.

Of Mattel's $761.2 million in cash and equivalents at December 31, 2022, approximately $304.1 million was held by foreign subsidiaries, including $69.2 million held in Russia.

Of Mattel's $1.26 billion in cash and equivalents at December 31, 2023, $578.1 million was held by foreign subsidiaries, including $57.2 million held in Russia.

Mattel's cash held in Russia can be used within the country;

however, its movement out of Russia is currently limited.

Cash flows from operating activities could be negatively impacted by decreased demand for Mattel's products, which could result from factors such as, but not limited to, adverse economic conditions and changes in public and consumer preferences, or by increased costs associated with manufacturing and distribution of products or shortages in raw materials or component parts.

Additionally, Mattel's ability to issue long-term debt and obtain seasonal financing could be adversely affected by factors such as, but not limited to, global economic crises and tight credit environments, an inability to comply with its debt covenants and its Revolving Credit Facility covenants, or deterioration of Mattel's credit ratings.

However, based on Mattel's current business plan and factors known to date, it is expected that existing cash and equivalents, cash flows from operations, availability under the Revolving Credit Facility, and access to capital markets, will be sufficient to meet working capital and operating expenditure requirements for the next twelve months.

The Tax Cuts and Jobs Act, enacted on December 22, 2017 (the "U.S.

Tax Act"), provides Mattel with a reduced cost to access the earnings of its foreign subsidiaries.

As such, Mattel has evaluated its intentions related to its indefinite reinvestment assertion and has recorded a $28.0 million deferred tax liability as of December 31, 2022, related to approximately $2.60 billion of foreign earning that will not be indefinitely reinvested.

With the passage of the U.S.

Tax Act, repatriations of foreign cash generally will not be taxable for U.S.

federal income tax, but may be subject to state income tax and/or foreign withholding tax, in addition to any local country distribution requirements.

Tax Act, repatriations of foreign earnings generally will not be taxable for U.S.

federal income tax purposes, but may be subject to state income tax and/or foreign withholding tax, in addition to any local country distribution requirements.

As such, Mattel has evaluated its intentions related to its indefinite reinvestment assertion and has recorded a $23 million deferred tax liability related to approximately $556 million of foreign earnings that will not be indefinitely reinvested.

Current Market Conditions

Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates.

Consistent with prior periods, Mattel intends to utilize its existing cash and cash equivalents, cash flow from operations, and Revolving Credit Facility to meet its short-term liquidity needs.

Consistent with prior periods, Mattel intends to utilize its existing cash and cash equivalents, cash flow from operations, and borrowings under the Revolving Credit Facility to meet its short-term liquidity needs.

At December 31, 2023, Mattel had no outstanding borrowings under the Revolving Credit Facility and approximately $9 million in outstanding letters of credit under the Revolving Credit Facility.

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Mattel monitors its customers' financial condition and their liquidity in order to mitigate accounts receivable collectability risks, and customer terms and credit limits are adjusted, if necessary.

Additionally, Mattel uses a variety of financial arrangements to ensure collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

Additionally, Mattel uses a variety of financial arrangements to support the collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

Mattel sponsors defined benefit pension plans and postretirement benefit plans for its employees.

Actual returns below the expected rate of return, along with changes in interest rates that affect the measurement of the liability, would impact the amount and timing of Mattel's future contributions to these plans.

Mattel expects to make cash contributions totaling approximately $14 million to its defined benefit pension and postretirement benefit plans in 2024, substantially all of which will be for benefit payments for its under-funded plans.

Cash Flow Activities

Cash flows provided by operating activities were $869.8 million in 2023, as compared to $442.8 million in 2022.

The decrease in cash flows provided by operating activities was primarily due to $62.2 million of higher working capital usage, partially offset by changes in net income, excluding the impact of non-cash items.

The increase in cash flows provided by operating activities was primarily due to $525.8 million of improvements to working capital, which included $477.4 million of favorability from changes to accounts payable and accrued liabilities and $464.8 million of favorability from lower inventories, partially offset by the impact of higher accounts receivable of $396.2 million.

The improvements to working capital were partially offset by changes in net income, excluding the changes to deferred tax assets of $176.4 million and other non-cash items.

Cash flows used for investing activities were $142.4 million in 2023, as compared to $144.2 million in 2022.

The increase in cash flows used for investing activities was primarily due to an increase in capital expenditures of $35.2 million.

The decrease in cash flows used for investing activities was primarily due to a $26.2 million decrease in capital expenditures and $15.5 million in higher net proceeds from foreign currency forward exchange contracts, partially offset by $31.3 million lower proceeds from the sale of assets.

Cash flows used for financing activities were $226.6 million in 2023, as compared to $260.6 million in 2022.

The decrease in cash flows used for financing activities was primarily due to $250.0 million repayment of the 3.15% Senior Notes due March 2023 in 2022, compared to $391.1 million of cash used for repayment and refinancing of the 6.75% 2017/2018 Senior Notes due December 2025 in 2021.

During 2022 and 2021, Mattel did not repurchase any shares of its common stock.

The decrease in cash flows used for financing activities was primarily due to the $250.0 million repayment of the 3.15% Senior Notes due March 2023 in 2022, partially offset by $203.0 million of share repurchases in 2023.

During 2023, Mattel repurchased 10.4 million shares of its common stock at a cost of $203.0 million.

During 2022, Mattel did not 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.

The resumption of repurchases under this program was announced on February 8, 2023.

On July 17, 2013, the Board of Directors approved a $500.0 million increase to Mattel's share repurchase authorization and, as of December 31, 2023, such authorization was exhausted.

On February 5, 2024, the Board of Directors authorized a new $1.00 billion share repurchase program.

Repurchases under the program will take place from time to time, depending on market conditions.

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Credit Ratings

In 2022, Fitch changed Mattel's long-term credit rating from BB to BB+ with a positive outlook.

In 2022, Moody's changed Mattel's long-term credit rating from Ba2 to Baa3 and maintained a stable outlook.

In 2022, Standard & Poor's changed Mattel's long-term credit rating from BB to BB+ and maintained a positive outlook.

In 2023, Fitch maintained Mattel's credit rating of BB+ with a positive outlook.

In 2023, Moody's maintained Mattel's credit rating of Baa3 with a stable outlook.

In 2023, Standard & Poor's changed Mattel's credit rating from BB+ to BBB- and maintained a positive outlook.

In February 2024, Fitch changed Mattel's credit rating from BB+ to BBB- with a stable outlook and Standard & Poor's changed Mattel's credit rating from BBB- to BBB with a stable outlook.

Financial Position

Mattel's cash and equivalents increased $29.9 million to $761.2 million at December 31, 2022, as compared to $731.4 million at December 31, 2021, primarily due to cash flow provided by operating activities of $442.8 million and proceeds from the sale of assets of $38.1 million, partially offset by the redemption of the $250.0 million aggregate principal amount of the 3.15% Senior Notes due 2023, and capital expenditures of $186.5 million.

Accounts receivable decreased $212.5 million to $860.2 million at December 31, 2022, as compared to $1.07 billion at December 31, 2021, due to the decline in net sales in the fourth quarter of 2022.

Inventories increased $116.9 million to $894.1 million at December 31, 2022, as compared to $777.2 million at December 31, 2021, which reflects the impact of lower than anticipated sales and cost inflation.

Prepaid expenses and other current assets decreased $79.8 million to $213.5 million at December 31, 2022, as compared to $293.3 million at December 31, 2021, primarily due to the $86.0 million settlement of a receivable due from insurers related to a legal matter.

Accounts payable and accrued liabilities decreased $420.6 million to $1.15 billion at December 31, 2022, as compared to $1.57 billion at December 31, 2021, primarily due to a decrease in accounts payable of $107.7 million, lower accrued incentive compensation of $137.0 million, $86.0 million in settlement of an accrued legal matter, and a decrease in accrued advertising and promotion of $64.0 million.

Mattel's cash and equivalents increased $500.1 million to $1.26 billion at December 31, 2023, as compared to $761.2 million at December 31, 2022, primarily due to cash flow provided by operating activities of $869.8 million, partially offset by share repurchases of $203.0 million and capital expenditures of $160.3 million.

Accounts receivable increased $221.6 million to $1.08 billion at December 31, 2023, as compared to $860.2 million at December 31, 2022, primarily due to the increase in net sales of $218.8 million in the fourth quarter of 2023 compared to the prior year.

Inventories decreased $322.5 million to $571.6 million at December 31, 2023, as compared to $894.1 million at December 31, 2022, primarily due to higher net sales in the fourth quarter of 2023, and higher inventory production and cost inflation in 2022.

Prepaid expenses and other current assets decreased $6.0 million to $207.5 million at December 31, 2023, as compared to $213.5 million at December 31, 2022, primarily due to a decrease in derivative receivables of $13.3 million.

Accounts payable and accrued liabilities increased $158.4 million to $1.31 billion at December 31, 2023, as compared to $1.15 billion at December 31, 2022, primarily due to higher accrued incentive compensation of $137.8 million.

A summary of Mattel's capitalization is as follows:

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2011 Senior Notes due November 2041 300.0 300.0

2013 Senior Notes due March 2023 — 250.0

2019 Senior Notes due December 2027 600.0 600.0

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Total capitalization (debt plus equity) $ 4,479.2 100 % $ 4,381.9 100 %

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.

In 2021, Mattel used the net proceeds from the issuance of $600 million of 3.375% Senior Notes due 2026 and $600 million of 3.750% Senior Notes due 2029, plus cash on hand, to redeem and retire $1.50 billion in aggregate principal amount of the 2025 Notes 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.

Total debt, was $2.33 billion at December 31, 2022, as compared to $2.57 billion at December 31, 2021.

The decrease was due to the $250 million redemption of the 3.15% Senior Notes due 2023.

Stockholders' equity increased $487.4 million to $2.06 billion at December 31, 2022, as compared to $1.57 billion at December 31, 2021, primarily due to net income in 2022 of $393.9 million and the impact of share-based compensation on additional paid-in capital of $69.1 million.

On December 30, 2022, Mattel used cash on hand to redeem and retire the $250 million aggregate principal amount of the 2013 Senior Notes due 2023.

Total debt was $2.33 billion at December 31, 2023, flat as compared to $2.33 billion at December 31, 2022.

Stockholders' equity increased $92.9 million to $2.15 billion at December 31, 2023, as compared to $2.06 billion at December 31, 2022, primarily due to net income in 2023 of $214.4 million and the impact of share-based compensation on additional paid-in capital of $83.3 million, partially offset by share repurchases of $203.0 million.

Off-Balance Sheet Arrangements

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Minimum guarantees under licensing and similar agreements 234.5 90.0 93.7 25.5 24.9 0.4 —

Defined benefit and postretirement benefit plans (a) 349.6 36.0 36.5 35.9 34.6 34.8 171.8

Defined benefit and postretirement benefit plans 351.9 37.3 36.3 35.5 34.5 34.9 173.4

Purchases of inventory, services, and other 395.5 283.9 49.9 30.3 25.3 6.1 —

Total $ 4,600.4 $ 614.3 $ 374.0 $ 855.7 $ 812.2 $ 123.3 $ 1,820.9

(a) Total defined benefit and postretirement benefit plans include obligations to be paid through 2032.

Liabilities for uncertain tax positions for which a cash tax payment is not expected to be made in the next twelve months are classified as other noncurrent liabilities.

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The content of Item 8 "Financial Statements and Supplementary Data—Note 13 to the Consolidated Financial Statements—Commitments and Contingencies—Litigation" is hereby incorporated by reference in this Item 7.

Employee Savings Plan

Mattel sponsors a 401(k) savings plan, the Mattel, Inc.

Personal Investment Plan (the "Plan"), for its domestic employees.

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.

Application of Critical Accounting Policies and Estimates

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The allowance for credit losses is also affected by the time at which uncollectable accounts receivable balances are actually written off.

For the years ended December 31, 2022 and 2021, Mattel recorded a charge related to its allowance for credit losses of approximately $18 million and $1 million, respectively, which was recognized as other selling and administrative expenses.

For the year ended December 31, 2023, Mattel recorded a benefit related to its allowance for credit losses of approximately $2 million, which was recognized as other selling and administrative income.

For the year ended December 31, 2022, Mattel recorded a charge related to its allowance for credit losses of approximately $18 million, which was recognized as other selling and administrative expenses.

In general, Mattel's allowance for credit loss estimates has historically been within its expectations and in line with the reserves established, and although possible, significant variation is not expected in the future.

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As a percentage of gross inventory 7.5 % 4.5 %

For the years ended December 31, 2022 and 2021, Mattel recorded a charge related to its inventory obsolescence reserve of approximately $65 million and $41 million, which was recognized as cost of sales.

For the years ended December 31, 2023 and 2022, Mattel recorded a charge related to its inventory obsolescence reserve of approximately $64 million and $65 million, respectively, which was recognized as cost of sales.

In general, Mattel's inventory obsolescence estimates have historically been within expectations and in line with the reserves established, and although possible, significant variation is not expected in the future.

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If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized in an amount equal to the excess, limited by the amount of goodwill in that reporting unit.

When performing the quantitative goodwill impairment test, Mattel determines the fair value based upon both the discounted cash flows that the business can be expected to generate in the future (the "Income Approach") and the market approach.

The Income Approach valuation method requires Mattel to make projections of revenue, gross margin, operating costs, and working capital investment for the reporting unit over a multi-year period.

When performing the quantitative goodwill impairment test, Mattel determines the fair value of its reporting units based upon one or more acceptable valuation approaches.

Mattel utilizes the income approach for each of its reporting units and the market approach is also utilized for the North America and International reporting units.

The income approach determines the fair value based upon the discounted cash flows that the business can be expected to generate in the future.

The market approach determines fair value utilizing earnings multiples of comparable public companies, which are reflective of the market in which each respective reporting unit operates, and recent comparable market transactions.

The income approach requires Mattel to make projections of revenue, gross margin, operating costs, and working capital investment for the reporting unit over a multi-year period.

Additionally, management must make an estimate of a weighted-average cost of capital that a market participant would use as a discount rate.

Changes in these projections or estimates would impact the estimated fair value, which could significantly change the amount of any impairment ultimately recorded.

The Income Approach valuation method is utilized for all reporting units.

The market approach is utilized for the North America and International reporting units.

Mattel last performed a quantitative goodwill impairment assessment as of August 1, 2020, and the resulting calculations indicated the fair values exceeded the carrying amounts of Mattel's reporting units by 3.7 times, 1.8 times, and 1.6 times for the North America, International, and American Girl reporting units, respectively.

In the third quarter of 2022, Mattel performed a qualitative assessment to determine whether it was more likely than not that the book value of each reporting unit exceeded its fair value.

As a result of Mattel's qualitative assessment, it was determined that goodwill was not impaired.

Mattel performed a quantitative goodwill impairment assessment as of August 1, 2023, and the resulting calculations indicated that the fair values exceeded the carrying amounts of Mattel's reporting units by 4.3 times, 1.7 times, and 1.8 times for the North America, International, and American Girl reporting units, respectively.

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, 2023.

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If significant changes in the assumptions used to develop the estimates occur, they could impact Mattel's results of operations or financial condition.

A hypothetical 1% increase or decrease in Mattel's sales adjustments as a percentage of net sales during the years ended December 31, 2022 and 2021 would have impacted 2022 and 2021 net sales by approximately $54 million and $55 million, respectively.

A hypothetical 1% increase or decrease in Mattel's sales adjustments as a percentage of net sales during the years ended December 31, 2023 and 2022 would have impacted 2023 and 2022 net sales by approximately $54 million.

Mattel's income tax provision and related income tax assets and liabilities are based on actual and expected future income, U.S.

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Management evaluates the level of Mattel's valuation allowances at least annually, and more frequently if actual operating results differ significantly from forecasted results.

During the year 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.

Changes in the valuation allowances in 2022 primarily related to utilization and expiration of tax attributes and 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 $16 million and $74 million, respectively.

Changes in the valuation allowances in 2022 primarily related to utilization and expiration of tax attributes and functional currency fluctuations.

Changes in the valuation allowances in 2023 primarily related to changes in assessment of the future realizability of certain deferred tax assets, utilization and expiration of tax attributes, and currency fluctuations.

As of December 31, 2023, Mattel's valuation allowances on its U.S.

6 unchanged sentences

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 (a greater than 50 percent likelihood) be realized.

As of December 31, 2022 and 2021, the unrecognized tax benefit balance, inclusive of interest and penalties, was $127.7 million and $137.9 million, respectively.

As of December 31, 2023 and 2022, the unrecognized tax benefit balance, inclusive of interest and penalties and net of federal tax benefit, was $144.9 million and $127.7 million, respectively.

In the normal course of business, Mattel is regularly audited by U.S.

26 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis