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 is not effective as of December 31, 2023, due to a material weakness in Mattel's internal control over financial reporting, as further described below. The effectiveness of Mattel's internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report that appears herein. Material Weakness A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Mattel identified a material weakness in its internal control over financial reporting related to certain of its information technology general controls within certain of the Company's information technology systems. Specifically, Mattel did not design and maintain effective user access and provisioning review controls to prevent or detect inappropriate user and privileged access to, or ensure the appropriate segregation of duties within, those systems. Additionally, Mattel's software program change monitoring controls are not effectively designed to detect inappropriate changes to those systems. The control deficiencies described did not result in a material misstatement to Mattel’s consolidated financial statements; however, those deficiencies raise a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. Therefore, management concluded that the deficiencies represent a material weakness. 49 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, 2023 and 2022, 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, 2023, 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, 2023 appearing after Item 16 and 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to certain of its information technology general controls within certain of the Company’s information technology systems, as the Company did not design and maintain effective user access and provisioning review controls to prevent or detect inappropriate user and privileged access to, or ensure the appropriate segregation of duties within, those systems. Additionally, the Company’s software program change monitoring controls are not effectively designed to detect inappropriate changes to those systems. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the accompanying Management’s Report on Internal Control Over Financial Reporting. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. 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 management's report referred to above. 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. 50 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. 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 $660.6 million for the year ended December 31, 2023. 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 March 15, 2024 We have served as the Company's auditor since 1974. 51 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 December 31, 2022 (In thousands, except share data) ASSETS Current Assets Cash and equivalents $ 1,261,363 $ 761,235 Accounts receivable, net of allowances for credit losses of $ 8.8 million and $ 27.6 million in 2023 and 2022, respectively 1,081,827 860,221 Inventories 571,609 894,064 Prepaid expenses and other current assets 207,548 213,515 Total current assets 3,122,347 2,729,035 Noncurrent Assets Property, plant, and equipment, net 465,523 469,132 Right-of-use assets, net 313,191 318,680 Goodwill 1,384,512 1,378,551 Deferred income tax assets 299,157 471,672 Identifiable intangible assets, net 393,039 425,100 Other noncurrent assets 458,053 385,491 Total Assets $ 6,435,822 $ 6,177,661 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 442,286 $ 471,475 Accrued liabilities 866,283 678,689 Income taxes payable 33,911 37,584 Total current liabilities 1,342,480 1,187,748 Noncurrent Liabilities Long-term debt 2,329,986 2,325,644 Noncurrent lease liabilities 259,548 271,418 Other noncurrent liabilities 354,595 336,582 Total noncurrent liabilities 2,944,129 2,933,644 Commitments and Contingencies (See Note 13) Stockholders' Equity Common stock $ 1.00 par value, 1.00 billion shares authorized; 441.4 million shares issued 441,369 441,369 Additional paid-in capital 1,774,911 1,808,308 Treasury stock at cost: 92.9 million shares and 87.0 million shares in 2023 and 2022, respectively ( 2,224,160 ) ( 2,129,639 ) Retained earnings 3,062,061 2,847,709 Accumulated other comprehensive loss ( 904,968 ) ( 911,478 ) Total stockholders' equity 2,149,213 2,056,269 Total Liabilities and Stockholders' Equity $ 6,435,822 $ 6,177,661 The accompanying notes are an integral part of these consolidated financial statements. 52 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands, except per share amounts) Net Sales $ 5,441,219 $ 5,434,687 $ 5,457,741 Cost of sales 2,857,503 2,953,335 2,831,079 Gross Profit 2,583,716 2,481,352 2,626,662 Advertising and promotion expenses 524,786 534,255 545,674 Other selling and administrative expenses 1,497,271 1,271,582 1,351,426 Operating Income 561,659 675,515 729,562 Interest expense 123,786 132,818 253,937 Interest (income) ( 25,238 ) ( 9,398 ) ( 3,503 ) Other non-operating (income) expense, net ( 2,293 ) 47,760 8,364 Income Before Income Taxes 465,404 504,335 470,764 Provision (benefit) for income taxes 269,475 135,851 ( 420,381 ) (Income) from equity method investments ( 18,423 ) ( 25,429 ) ( 11,842 ) Net Income $ 214,352 $ 393,913 $ 902,987 Net Income Per Common Share - Basic $ 0.61 $ 1.11 $ 2.58 Weighted-average number of common shares 353,588 353,792 350,007 Net Income Per Common Share - Diluted $ 0.60 $ 1.10 $ 2.53 Weighted-average number of common and potential common shares 357,112 359,612 357,253 The accompanying notes are an integral part of these consolidated financial statements. 53 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Net Income $ 214,352 $ 393,913 $ 902,987 Other Comprehensive Income, Net of Tax Currency translation adjustments 37,123 ( 6,191 ) ( 54,690 ) Employee benefit plan adjustments ( 4,418 ) 15,601 32,755 Available-for-sale security adjustments — 3,646 1,075 Net unrealized (losses) gains on derivative instruments: Unrealized holding (losses) gains ( 15,903 ) 40,449 23,253 Reclassification adjustments included in net income ( 10,292 ) ( 26,513 ) 912 ( 26,195 ) 13,936 24,165 Other Comprehensive Income, Net of Tax 6,510 26,992 3,305 Comprehensive Income $ 220,862 $ 420,905 $ 906,292 The accompanying notes are an integral part of these consolidated financial statements. 54 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Cash Flows From Operating Activities: Net Income $ 214,352 $ 393,913 $ 902,987 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation 139,451 144,577 146,274 Amortization of intangibles 37,893 37,602 38,039 Share-based compensation 83,334 69,072 60,081 Bad debt expense ( 1,502 ) 18,279 1,202 Inventory obsolescence 63,748 64,916 40,881 Deferred income taxes 176,385 69,510 56,658 Income from equity method investments ( 18,423 ) ( 25,429 ) ( 11,842 ) Loss on extinguishment of long-term borrowings — — 101,695 Loss (gain) on sale of assets, net 1,016 ( 26,905 ) ( 23,823 ) Release of valuation allowance on deferred tax assets — — ( 540,803 ) Content asset amortization 51,837 56,037 47,369 Loss on liquidation of subsidiary — 45,366 — Changes in assets and liabilities: Accounts receivable, net ( 198,322 ) 197,902 ( 85,603 ) Inventories 261,309 ( 203,522 ) ( 330,899 ) Prepaid expenses and other current assets 8,182 ( 11,960 ) ( 26,533 ) Accounts payable, accrued liabilities, and income taxes payable 135,767 ( 341,605 ) 208,722 Content asset spend ( 58,062 ) ( 60,259 ) ( 44,313 ) Other, net ( 27,174 ) 15,348 ( 54,629 ) Net cash flows provided by operating activities 869,791 442,842 485,463 Cash Flows From Investing Activities: Purchases of tools, dies, and molds ( 74,480 ) ( 80,175 ) ( 74,222 ) Purchases of other property, plant, and equipment ( 85,820 ) ( 106,328 ) ( 77,131 ) Proceeds from (payments for) foreign currency forward exchange contracts, net 14,948 ( 520 ) 1,585 Proceeds from sale of assets 6,847 38,148 43,649 Other, net ( 3,913 ) 4,650 1,022 Net cash flows used for investing activities ( 142,418 ) ( 144,225 ) ( 105,097 ) Cash Flows From Financing Activities: Payments of short-term borrowings, net — — ( 969 ) Payments of long-term borrowings, net — ( 250,000 ) ( 1,575,997 ) Proceeds from long-term borrowings, net — — 1,184,913 Share repurchases ( 203,016 ) — — Tax withholdings for share-based compensation ( 35,108 ) ( 30,440 ) ( 19,987 ) Proceeds from stock option exercises 26,742 27,750 12,131 Other, net ( 15,185 ) ( 7,949 ) ( 2,165 ) Net cash flows used for financing activities ( 226,567 ) ( 260,639 ) ( 402,074 ) Effect of Currency Exchange Rate Changes on Cash and Equivalents ( 678 ) ( 8,105 ) ( 9,111 ) Change in Cash and Equivalents 500,128 29,873 ( 30,819 ) Cash and Equivalents at Beginning of Period 761,235 731,362 762,181 Cash and Equivalents at End of Period $ 1,261,363 $ 761,235 $ 731,362 Supplemental Cash Flow Information: Cash paid during the year for: Income taxes, gross $ 93,641 $ 89,617 $ 93,129 Interest 117,701 129,217 210,140 The accompanying notes are an integral part of these consolidated financial statements. 55 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, 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 Net income — — — 214,352 — 214,352 Other comprehensive income, net of tax — — — — 6,510 6,510 Share repurchases — — ( 203,016 ) — — ( 203,016 ) Issuance of treasury stock for stock option exercises — ( 16,059 ) 42,801 — — 26,742 Issuance of treasury stock for restricted stock units vesting — ( 100,636 ) 65,528 — — ( 35,108 ) Deferred compensation — ( 36 ) 166 — — 130 Share-based compensation — 83,334 — — — 83,334 Balance, December 31, 2023 $ 441,369 $ 1,774,911 $ ( 2,224,160 ) $ 3,062,061 $ ( 904,968 ) $ 2,149,213 The accompanying notes are an integral part of these consolidated financial statements. 56 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 asset 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. 57 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. Content Assets Mattel incurs and capitalizes direct costs associated with the production of episodic series, feature films, and other similar forms of content. Content assets are recorded within other noncurrent assets in the consolidated balance sheets. Mattel's content assets are predominately monetized individually and amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues ("Ultimate Revenues"). Ultimate Revenues include revenues forecasted to be earned within ten years from the date of initial release of the content asset. Ultimate Revenues are reassessed each reporting period. If Mattel's estimate of Ultimate Revenues decreases, amortization of costs may be accelerated or result in an impairment. To the extent Mattel's estimate of Ultimate Revenues increases, cost amortization may be slowed. Content asset amortization is recorded within cost of sales in the consolidated statements of operations. Unamortized content assets shall be tested for impairment at the individual content asset level when events or changes in circumstances indicate that the fair value of an asset may be less than its unamortized costs. 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. 58 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 (income) expense, net in the consolidated statements of operations in the period in which the currency exchange rate changes. 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. 59 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. 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 . 60 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. 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 September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 about the program to allow a user of the financial statements to understand the program's nature, potential magnitude, obligations outstanding at the end of each period, and an annual rollforward of such obligations. The guidance in ASU 2022-04 was effective for interim and fiscal years beginning after December 15, 2022. The annual rollforward disclosure is not required to be made until the fiscal year beginning after December 15, 2023, and is to be applied prospectively. Refer to "Note 5 to the Consolidated Financial Statements—Supplier Finance Program" for additional information regarding Mattel's supplier finance program. The adoption of this new accounting standard did not have a material impact on Mattel's consolidated financial statements. Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires incremental disclosure of significant segment expenses on an annual and interim basis to enable investors to develop more decision-useful financial analyses. The guidance in ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Mattel is currently evaluating the impact of the adoption of ASU 2023-07 on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires enhanced income tax disclosures on an annual basis for specific categories in the rate reconciliation and disclosure of income taxes paid by jurisdiction. The guidance in ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Mattel is currently evaluating the impact of the adoption of ASU 2023-09 on its consolidated financial statements. 61 Note 2— Property, Plant, and Equipment, Net Property, plant, and equipment, net included the following: December 31, 2023 December 31, 2022 (In thousands) Land $ 19,838 $ 18,045 Buildings 313,750 303,827 Machinery and equipment 628,089 654,437 Software 233,224 336,716 Tools, dies, and molds 488,170 510,398 Leasehold improvements 121,571 104,135 Construction in progress 48,483 79,742 1,853,125 2,007,300 Less: accumulated depreciation ( 1,387,602 ) ( 1,538,168 ) $ 465,523 $ 469,132 During the second quarter of 2022, Mattel completed the sale of the American Girl corporate office 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. 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 2023 and 2022 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. December 31, 2021 Currency Exchange Rate Impact December 31, 2022 Currency Exchange Rate Impact December 31, 2023 (In thousands) North America $ 731,789 $ 204 $ 731,993 $ 1,494 $ 733,487 International 450,847 ( 11,860 ) 438,987 4,467 443,454 American Girl 207,571 — 207,571 — 207,571 $ 1,390,207 $ ( 11,656 ) $ 1,378,551 $ 5,961 $ 1,384,512 In the third quarter of 2023, Mattel performed its annual impairment test and determined each reporting unit's fair value exceeded its carrying amount and 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, 2023. 62 Intangible Assets, Net Identifiable intangibles were $ 393.0 million, net of accumulated amortization of $ 408.5 million, and $ 425.1 million, net of accumulated amortization of $ 364.9 million, as of December 31, 2023 and 2022, respectively. The estimated future amortization expense for the next five years is as follows: Amortization Expense (In thousands) 2024 $ 31,110 2025 30,843 2026 30,816 2027 30,337 2028 28,750 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 2023 and 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. 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. A summary of retirement plan expense, net is as follows: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Defined contribution retirement plans $ 37,784 $ 36,900 $ 34,821 Defined benefit pension plans 9,949 5,693 14,858 Deferred compensation and excess benefit plans 8,227 ( 7,113 ) 6,857 Postretirement benefit plans ( 2,084 ) ( 2,047 ) ( 1,968 ) $ 53,876 $ 33,433 $ 54,568 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. 63 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 for the years ended December 31 is as follows: Defined Benefit Pension Plans Postretirement Benefit Plans 2023 2022 2021 2023 2022 2021 (In thousands) Net Periodic Benefit Cost (Credit): Service cost $ 3,371 $ 4,010 $ 4,925 $ 1 $ 2 $ 2 Interest cost 20,966 12,081 10,094 179 89 78 Expected return on plan assets ( 20,372 ) ( 19,242 ) ( 18,531 ) — — — Amortization of prior service cost (credit) 150 155 163 ( 2,038 ) ( 2,038 ) ( 2,038 ) Recognized actuarial loss (gain) 5,893 8,996 11,177 ( 226 ) ( 100 ) ( 10 ) Settlement (gain) loss ( 59 ) 19 6,982 — — — Curtailment (gain) loss — ( 326 ) 48 — — — Net periodic benefit cost (credit) $ 9,949 $ 5,693 $ 14,858 $ ( 2,084 ) $ ( 2,047 ) $ ( 1,968 ) Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: Net actuarial loss (gain) $ 904 $ ( 23,501 ) $ ( 42,671 ) $ 311 $ ( 922 ) $ ( 605 ) Prior service cost 1,169 1,022 204 — — — Amortization of prior service (cost) credit ( 150 ) ( 155 ) ( 163 ) 2,038 2,038 2,038 Total recognized in other comprehensive loss (income) (a) $ 1,923 $ ( 22,634 ) $ ( 42,630 ) $ 2,349 $ 1,116 $ 1,433 Total recognized in net periodic benefit cost (credit) and other comprehensive income $ 11,872 $ ( 16,941 ) $ ( 27,772 ) $ 265 $ ( 931 ) $ ( 535 ) (a) Amounts exclude related tax (benefit) expense of approximately $( 2 ) million, $ 6 million, and $ 9 million, during 2023, 2022, and 2021, respectively, which are also included in other comprehensive income. 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, 2023 December 31, 2022 December 31, 2021 Defined benefit pension plans: Discount rate 4.9 % 2.5 % 2.2 % 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 % 5.0 % Postretirement benefit plans: Discount rate 4.9 % 2.5 % 2.2 % 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 % 7.0 % 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 2029 2028 2027 Post-65 2029 2028 2027 64 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. Mattel used a measurement date of December 31, 2023 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, 2023 December 31, 2022 December 31, 2023 December 31, 2022 (In thousands) Change in Benefit Obligation: Benefit obligation, beginning of year $ 452,524 $ 613,266 $ 3,994 $ 5,176 Service cost 3,371 4,010 1 2 Interest cost 20,966 12,081 179 89 Impact of currency exchange rate changes 4,921 ( 14,874 ) — — Actuarial loss (gain) 13,879 ( 124,229 ) 85 ( 1,022 ) Benefits paid ( 35,634 ) ( 36,943 ) ( 174 ) ( 251 ) Plan amendments 895 — — — Curtailments 167 ( 326 ) — — Settlements ( 338 ) ( 359 ) — — Other ( 75 ) ( 102 ) — — Benefit obligation, end of year $ 460,676 $ 452,524 $ 4,085 $ 3,994 Change in Plan Assets: Plan assets at fair value, beginning of year $ 322,175 $ 457,132 $ — $ — Actual return (loss) on plan assets 24,184 ( 91,470 ) — — Employer contributions 13,354 5,029 174 251 Impact of currency exchange rate changes 3,670 ( 11,105 ) — — Benefits paid ( 35,634 ) ( 36,943 ) ( 174 ) ( 251 ) Settlements ( 338 ) ( 359 ) — — Other ( 75 ) ( 109 ) — — Plan assets at fair value, end of year $ 327,336 $ 322,175 $ — $ — Net Amount Recognized in Consolidated Balance Sheets: Funded status, end of year $ ( 133,340 ) $ ( 130,349 ) $ ( 4,085 ) $ ( 3,994 ) Current accrued benefit liability $ ( 5,960 ) $ ( 5,109 ) $ ( 530 ) $ ( 630 ) Noncurrent accrued benefit liability, net ( 127,380 ) ( 125,240 ) ( 3,555 ) ( 3,364 ) Net amount recognized $ ( 133,340 ) $ ( 130,349 ) $ ( 4,085 ) $ ( 3,994 ) Amounts Recognized in Accumulated Other Comprehensive Loss (a): Net actuarial loss (gain) $ 214,070 $ 213,166 $ ( 1,566 ) $ ( 1,877 ) Prior service cost (credit) 2,075 1,056 ( 4,035 ) ( 6,073 ) $ 216,145 $ 214,222 $ ( 5,601 ) $ ( 7,950 ) (a) Amounts exclude related tax benefits of approximately $ 69 million and $ 68 million for December 31, 2023 and 2022, 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 2023 and 2022 totaled $ 445.2 million and $ 437.8 million, respectively. 65 The actuarial loss recognized in 2023 for the defined benefit pension plan was driven primarily by the decrease in the discount rate from the prior year that was used to determine the projected benefit obligation at December 31, 2023. 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. As of December 31, 2023 and 2022, information for defined benefit pension plans that had aggregate accumulated benefit obligations and projected benefit obligations in excess of plan assets is as follows: December 31, 2023 December 31, 2022 (In thousands) Projected benefit obligation $ 395,104 $ 391,459 Accumulated benefit obligation 379,659 376,769 Fair value of plan assets 252,959 251,487 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, 2023 December 31, 2022 Defined benefit pension plans: Discount rate 4.7 % 4.9 % 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 4.7 % 4.9 % Annual increase in Medicare Part B premium 6.0 % 6.0 % Health care cost trend rate: Pre-65 7.9 % 7.0 % Post-65 8.1 % 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 2031 2029 Post-65 2031 2029 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, 2023, Mattel determined the discount rate for its domestic defined benefit pension and postretirement benefit plans used in determining the projected and accumulated benefit obligations to be 4.7 %, as compared to 4.9 % as of December 31, 2022. In estimating this rate, Mattel reviews rates of return on high-quality corporate bond indices, which approximate the timing and amount of benefit payments. 66 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) 2024 $ 36,773 $ 530 2025 35,749 530 2026 35,063 430 2027 34,043 420 2028 34,534 320 2029 - 2033 172,194 1,210 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. 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 78 % 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. 67 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 11 to the Consolidated Financial Statements—Fair Value Measurements," as follows: December 31, 2023 Level 1 Level 2 Level 3 Total (In thousands) U.S. government and U.S. government agency securities $ — $ 9,636 $ — $ 9,636 U.S. corporate debt instruments — 63,707 — 63,707 International corporate debt instruments — 3,291 — 3,291 Mutual funds (a) 126,637 Money market funds 13,092 — — 13,092 Other investments — 4,180 — 4,180 Insurance "buy-in" policy — — 60,727 60,727 Collective trust funds (a): U.S. equity securities 562 International equity securities 2,874 Global fixed income 25,048 Real Estate 17,582 Total $ 13,092 $ 80,814 $ 60,727 $ 327,336 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 Diversified funds — Real Estate 20,984 Total $ 8,043 $ 84,237 $ 57,310 $ 322,175 (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 consolidated balance sheets 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. 68 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 Accounting Standards Codification 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, 2021 $ 30,731 Purchases, sales, and settlements 41,347 Changes in fair value ( 14,768 ) Balance at December 31, 2022 57,310 Purchases, sales, and settlements ( 2,860 ) Changes in fair value 6,277 Balance at December 31, 2023 $ 60,727 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, 2023 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, 2023 and 2022 was $ 53.3 million and $ 49.7 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 $ 87.1 million and $ 79.6 million as of December 31, 2023 and 2022, 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. 69 Annual Incentive Compensation Mattel has an annual incentive compensation plan 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. Incentive compensation for 2023, 2022, and 2021 were $ 137.8 million, $ 0 million , and $ 137.1 million, respectively, for awards under the plan and were included in other selling and administrative expenses. During 2022, Mattel did not achieve threshold performance under the plan, and therefore, no cash payout was earned. Note 5— Supplier Finance Program Mattel has an agreement with a third-party financial institution that allows certain participating suppliers the opportunity to voluntarily finance payment obligations of Mattel under a supplier finance program. Under this program, participating suppliers may accelerate the timing of collection of their receivables due from Mattel, prior to their scheduled due dates, by selling one or more of their receivables at a discounted price to the third-party financial institution. The range of payment terms Mattel negotiates with suppliers are consistent, regardless of whether the suppliers participate in the supplier finance program and Mattel does not have any economic interest in any suppliers' decision to participate in the supplier finance program. Suppliers participating in the program are able to select which individual Mattel invoices they sell to the third-party financial institution. However, all Mattel payments of the full amounts due to participating suppliers are paid on the invoice due date based on the terms originally negotiated with the supplier, regardless of whether the individual invoice due to the supplier is sold to the third-party financial institution. Included in Mattel's accounts payable in the consolidated balance sheets as of December 31, 2023 and 2022 were $ 54.3 million and $ 86.0 million of outstanding payment obligations due to suppliers, respectively, under the supplier finance program. All payment activities related to the supplier finance program were presented within operating activities in the consolidated statements of cash flows. Note 6— 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 a senior secured revolving credit facility in an aggregate principal amount of $ 1.40 billion (the "Revolving Credit Facility"). The Revolving Credit Facility will mature on September 15, 2025. In connection with the entry into the Credit Agreement, Mattel terminated the commitments and satisfied all outstanding obligations under the previous credit agreement, dated December 20, 2017 (as amended). Borrowings under the Revolving Credit Facility 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 is 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. In November 2022, Moody's upgraded Mattel's credit rating from Ba1 to Baa3, and in April 2023, S&P upgraded Mattel's credit rating from BB+ to BBB- and maintained a positive outlook. On April 27, 2023 (the "Fall-Away Date"), Mattel provided a certification of the foregoing to the administrative agent under the Credit Agreement, which resulted in certain subsidiary guarantees, liens, covenants, and other restrictions falling away under the Credit Agreement. The obligations of Mattel under the Revolving Credit Facility were previously guaranteed by each domestic subsidiary of Mattel that guaranteed any of Mattel's senior unsecured notes (collectively, the "Guarantors"). On the Fall-Away Date, the foregoing guarantees were released and the obligations of Mattel under the Revolving Credit Facility are instead 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 was previously 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, but all such liens were permanently released on the Fall-Away Date. 70 The Credit Agreement contains customary covenants (subject to customary exceptions), 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, sell or otherwise dispose of assets, or amend organizational documents. 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 not to exceed 3.75 to 1.00 as of the end of each fiscal quarter. As of December 31, 2023 and 2022, Mattel had no borrowings outstanding under the Revolving Credit Facility. Outstanding letters of credit under the Revolving Credit Facility totaled approximately $ 9 million and $ 8 million as of December 31, 2023 and 2022, respectively. To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines. As of December 31, 2023, foreign credit lines totaled approximately $ 20 million. Mattel expects to extend the majority of these credit lines throughout 2024. As of December 31, 2023, 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, 2023 and 2022, Mattel had no short-term borrowings outstanding. During 2023, Mattel had no borrowings under the Revolving Credit Facility and no other short-term borrowings. During 2022, Mattel had average borrowings under the new and previous senior secured revolving credit facilities and other short-term borrowings of $ 2.9 million, to help finance its seasonal working capital requirements, and the weighted-average interest rate on borrowings under the senior secured revolving credit facilities and other short-term borrowings during 2022 was 3.6 %. Mattel's average foreign short-term borrowings were not material during 2023 and 2022. 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 Mattel, 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 Mattel, 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 any time or from time to time at its option, at a redemption price including a call premium that varies (from 0 % to 1.688 %) depending on the year of redemption, plus accrued and unpaid interest to, but excluding, the redemption date. Mattel may redeem all or part of the 2029 Notes at any time or from time to time prior to April 1, 2024, 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 2029 Notes being redeemed to, but excluding, the redemption date. Any time or from time to time following April 1, 2024, Mattel may redeem all or part of the 2029 Notes, at its option, at a redemption price including a call premium that varies (from 0 % to 1.875 %) depending on the year of redemption, plus accrued and unpaid interest to, but excluding, the redemption date. Mattel may also redeem up to 40 % of the principal amount of the 2029 Notes at any time or from time to time prior to April 1, 2024, at its option, at a redemption price equal to 103.750 %, of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the 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. 71 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). 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 2017/2018 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 the $ 250 million aggregate principal amount of the 2013 Senior Notes due 2023. In April 2023, S&P upgraded Mattel’s credit rating from BB+ to BBB- and maintained a positive outlook, and in November 2022, Moody’s upgraded Mattel’s credit rating from Ba1 to Baa3. As a result of the upgraded credit ratings and no events of default, the covenants limiting Mattel’s ability to incur additional debt or issue certain preferred shares, pay dividends on or make other distributions in respect of their capital stock or make other restricted payments, and make investments in unrestricted subsidiaries, and certain provisions of the covenant limiting Mattel’s ability to merge or consolidate, or sell, transfer or otherwise dispose of substantially all of their assets, are suspended. If Mattel ceases to have credit ratings of BBB-, Baa3, and/or BBB- (or higher) from any two of S&P, Moody's, and Fitch, respectively, Mattel will thereafter be subject to the suspended covenants with respect to future events. Following the Fall-Away Date under the Revolving Credit Facility, all guarantee obligations of the Guarantors under the 2019 Senior Notes due 2027, 2021 Senior Notes due 2026, and 2021 Senior Notes due 2029 were released, and the obligations of Mattel under the 2019 Senior Notes due 2027, 2021 Senior Notes due 2026, and 2021 Senior Notes due 2029 will 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. Mattel's long-term debt consists of the following: Interest Rate December 31, 2023 December 31, 2022 (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 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 ( 20,014 ) ( 24,356 ) 2,329,986 2,325,644 Less: current portion — — Total long-term debt $ 2,329,986 $ 2,325,644 72 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) 2024 $ — $ — $ — $ — $ — 2025 — — — — — 2026 — — — 600,000 600,000 2027 — — 600,000 — 600,000 2028 — — — — — Thereafter 250,000 300,000 — 600,000 1,150,000 $ 250,000 $ 300,000 $ 600,000 $ 1,200,000 $ 2,350,000 Note 7— 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 2023, Mattel repurchased 10.4 million shares of its common stock at a cost of $ 203.0 million. During 2022 and 2021, 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 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. During February 2024, Mattel executed $ 100.0 million of share repurchases under the new program. Repurchases will take place from time to time, depending on market conditions. Mattel's share repurchase program has no expiration date. Dividends During 2023, 2022, and 2021, 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. 73 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 and reclassifications out of accumulated other comprehensive income (loss): For the Year Ended December 31, 2023 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, 2022 $ 22,732 $ — $ ( 138,498 ) $ ( 795,712 ) $ ( 911,478 ) Other comprehensive income (loss) before reclassifications ( 15,903 ) — ( 6,558 ) 37,123 14,662 Amounts reclassified from accumulated other comprehensive income (loss) ( 10,292 ) — 2,140 — ( 8,152 ) Net (decrease) increase in other comprehensive income ( 26,195 ) — ( 4,418 ) 37,123 6,510 Accumulated Other Comprehensive Loss, Net of Tax, as of December 31, 2023 $ ( 3,463 ) $ — $ ( 142,916 ) $ ( 758,589 ) $ ( 904,968 ) 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 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 income 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 ) 74 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, 2023 December 31, 2022 December 31, 2021 (In thousands) Derivative Instruments Gain (loss) on foreign currency forward exchange and other contracts $ 9,880 $ 26,500 $ ( 512 ) Cost of sales Tax effect 412 13 ( 400 ) Provision/benefit for income taxes $ 10,292 $ 26,513 $ ( 912 ) Net Income Employee Benefit Plans Amortization of prior service credit (a) $ 1,888 $ 1,883 $ 1,875 Other non-operating income/expense, net Recognized actuarial (loss) (a) ( 5,667 ) ( 8,896 ) ( 11,167 ) Other non-operating income/expense, net Curtailment gain (loss) (a) — 326 ( 48 ) Other non-operating income/expense, net Settlement gain (loss) (a) 59 ( 19 ) ( 6,982 ) Other non-operating income/expense, net ( 3,720 ) ( 6,706 ) ( 16,322 ) Tax effect 1,580 6,093 3,528 Provision/benefit for income taxes $ ( 2,140 ) $ ( 613 ) $ ( 12,794 ) Net Income Currency Translation Adjustments (Loss) on liquidation of subsidiary $ — $ ( 45,366 ) $ — Other non-operating income/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 gain (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 effect 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 Accounting Standards Codification 321, Investments—Equity Securities. The adjustment included $ 3.6 million of accumulated other comprehensive loss reclassified to other non-operating expense (income), 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 2023, currency translation adjustments resulted in a net other comprehensive gain of $ 37.1 million, primarily due to the strengthening of the Mexican peso and British pound sterling against the U.S. dollar, partially offset by the weakening of the Russian ruble against the U.S. dollar. 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. 75 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. Note 8— Leases The following table summarizes Mattel's right-of-use assets and liabilities and other information about its leases: December 31, 2023 December 31, 2022 (In thousands, except years and percentage information) Right-of-use assets, net $ 313,191 $ 318,680 Accrued liabilities 77,254 75,297 Noncurrent lease liabilities 259,548 271,418 Total lease liabilities $ 336,802 $ 346,715 Weighted-average remaining lease term 5.7 years 5.6 years Weighted-average discount rate 6.5 % 6.5 % Lease costs for the years ended December 31, 2023, 2022, and 2021 were as follows: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Lease costs (a) (b) $ 127,850 $ 140,188 $ 134,272 (a) Includes short-term and variable lease costs of approximately $ 36 million, $ 47 million, and $ 39 million for 2023, 2022, and 2021 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 2023, 2022, and 2021, contingent rental expense was not material. Supplemental information related to leases were as follows: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Cash payments for leases $ 98,453 $ 93,465 $ 100,286 Right-of-use assets obtained in exchange for new and modified lease liabilities 71,375 74,199 105,898 76 The following table shows the future maturities of lease liabilities for leases in effect as of December 31, 2023: Years Ending December 31, Lease Liabilities (In thousands) 2024 $ 93,172 2025 84,210 2026 69,664 2027 39,407 2028 27,534 Thereafter 100,103 414,090 Less: imputed interest ( 77,288 ) $ 336,802 Mattel has entered into noncancelable lease agreements for premises and equipment to be used in the normal course of business which had not yet commenced as of December 31, 2023. The future minimum obligations related to these agreements is approximately $ 34.7 million. Note 9— Share-Based Payments Mattel Stock Plans The 2010 Equity and Long-Term Compensation Plan was approved by Mattel's stockholders in May 2010. 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. 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. 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. Nonqualified stock options generally vest and become exercisable contingent upon the grantees' continued employment or service with Mattel. In the event of a retirement, or an involuntary termination, of an employee that meets retirement provisions under the Amended 2010 Plan, 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. In the event of an involuntary termination, an employee has 90 days to exercise vested options. 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 that meets retirement provisions under the Amended 2010 Plan, or the death or disability of an employee, that occurs at least six months after the grant-date, RSUs become fully vested. Performance awards granted under the Amended 2010 Plan vest upon achievement of performance conditions at a settlement date determined by the Compensation Committee of the Board of Directors, which occurs in the first quarter subsequent the performance cycle. In the event of a retirement of an employee that meets retirement provisions under the Amended 2010 Plan, or the death or disability of an employee, that occurs in each case at least six months after the start date of the performance period, performance awards vest at the settlement date. In each case, vested performance awards are determined upon the achievement of performance conditions over the performance period, which is then prorated for the period of employment as a percentage of the performance period. An employee qualifies for retirement provisions under the Amended 2010 Plan if; aged 55 years or older with 5 or more years of service for grants prior to April 28, 2023, or aged 55 years or older with 10 or more years of service for grants on or after April 28, 2023, which includes Mattel's 2023 annual employee grant. 77 The number of shares of common stock available for grant under the Amended 2010 Plan is subject to an aggregate limit as defined therein. At December 31, 2023, there were approximately 32 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 $ 83.3 million, $ 69.1 million, and $ 60.1 million during 2023, 2022, and 2021, 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 2023, 2022, and 2021 was approximately $ 10 million, $ 9 million and $ 7 million, respectively. As of December 31, 2023, total unrecognized compensation cost related to unvested share-based payments totaled $ 102.8 million and is expected to be recognized over a weighted-average period of 1.9 years. Stock Options Mattel recognized compensation expense of $ 6.7 million, $ 13.2 million, and $ 10.1 million for stock options during 2023, 2022, and 2021, 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 2023, 2022, and 2021 was $ 8.91 , $ 11.18 , and $ 9.31 respectively. The following weighted-average valuation assumptions were used in determining the fair value of options granted: 2023 2022 2021 Expected life (in years) 6.6 6.4 6.2 Risk-free interest rate 3.5 % 3.1 % 0.8 % Volatility factor 44.4 % 43.8 % 43.6 % Dividend yield — % — % — % The following is a summary of stock option information and weighted-average exercise prices for Mattel's stock options: 2023 2022 2021 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 17,563 $ 21.73 19,678 $ 22.38 21,635 $ 22.10 Granted 579 18.00 721 23.41 1,054 21.71 Exercised ( 1,751 ) 15.27 ( 1,412 ) 19.65 ( 687 ) 17.65 Forfeited ( 146 ) 18.59 ( 104 ) 18.13 ( 72 ) 14.00 Canceled ( 4,503 ) 27.57 ( 1,320 ) 34.94 ( 2,252 ) 21.10 Outstanding at December 31 11,742 $ 20.30 17,563 $ 21.73 19,678 $ 22.38 Exercisable at December 31 10,544 $ 20.25 15,531 $ 22.10 16,634 $ 23.68 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 $ 9 million, $ 8 million and $ 3 million, during 2023, 2022, and 2021, respectively. At December 31, 2023, options outstanding had an intrinsic value of approximately $ 26 million with a weighted-average remaining life of 4.4 years. At December 31, 2023, options exercisable had an intrinsic value of approximately $ 25 million, with a weighted-average remaining life of 3.9 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 2023 was approximately $ 27 million. 78 At December 31, 2023, stock options vested and expected to vest totaled approximately 12 million shares, with an intrinsic value of approximately $ 26 million, weighted-average exercise price of $ 20.31 , and weighted-average remaining life of 4.4 years. During 2023, approximately 1 million stock options vested. The total grant-date fair value of stock options vested during 2023, 2022, and 2021 was approximately $ 9 million, $ 9 million, and $ 15 million, respectively. Restricted Stock Units Compensation expense recognized related to grants of RSUs was $ 48.5 million, $ 37.7 million, and $ 27.3 million in 2023, 2022, and 2021, 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 vesting 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: 2023 2022 2021 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 4,503 $ 21.00 3,855 $ 17.03 3,986 $ 12.52 Granted 3,479 18.24 2,728 23.20 2,167 21.77 Vested ( 2,186 ) 19.18 ( 1,790 ) 16.01 ( 1,954 ) 13.66 Forfeited ( 622 ) 19.91 ( 290 ) 19.77 ( 344 ) 13.72 Unvested at December 31 5,174 $ 20.04 4,503 $ 21.00 3,855 $ 17.03 At December 31, 2023, RSUs expected to vest totaled approximately 5 million shares, with a weighted-average grant-date fair value of $ 20.10 . The total grant-date fair value of RSUs vested during 2023, 2022, and 2021 was approximately $ 42 million, $ 29 million, and $ 27 million, respectively. Performance Awards Compensation expense recognized related to grants of performance awards was $ 28.1 million, $ 18.2 million, and $ 22.7 million during 2023, 2022, and 2021, respectively. Mattel had four LTIP performance cycles in place during 2023, which were established by the Compensation Committee of the Board of Directors: (i) a January 1, 2020—December 31, 2022 ("2020 LTIP"), which was completed in the first quarter of 2023 (ii) a January 1, 2021—December 31, 2023 performance cycle ("2021 LTIP"), (ii) a January 1, 2022—December 31, 2024 performance cycle ("2022 LTIP"), and (iii) a January 1, 2023—December 31, 2025 performance cycle ("2023 LTIP"). Under the LTIP performance cycles in place in 2023, 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 2023, 2022, and 2021 was $ 19.44 , $ 28.39 , and $ 22.91 respectively. The following weighted-average valuation assumptions were used in determining the fair value of the market-related components of performance awards granted: 2023 2022 2021 Risk-free interest rate 3.8 % 2.8 % 0.3 % Volatility factor 35.6 % 43.4 % 50.1 % Dividend yield — % — % — % 79 The following is a summary of performance award information and weighted-average grant-date fair values for Mattel's performance awards: 2023 2022 2021 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 2,894 $ 18.77 3,347 $ 15.52 3,405 $ 13.79 Granted (a)(b) 1,954 16.42 1,440 21.35 906 22.04 Vested ( 2,189 ) 11.93 ( 1,823 ) 14.89 ( 884 ) 15.63 Forfeited ( 219 ) 18.96 ( 70 ) 17.26 ( 80 ) 14.70 Unvested at December 31 2,440 $ 23.01 2,894 $ 18.77 3,347 $ 15.52 (a) During 2023, Mattel granted 1.2 million shares as part of its 2023 LTIP and issued 0.8 million incremental shares under the 2020 LTIP based on the final earnout of the 2020 performance cycle, which are included in the weighted average grant-date fair value. 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. (b) The number of shares granted for the 2023 LTIP, the 2022 LTIP, and the 2021 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 2 million, 1 million, and 2 million for 2023, 2022, and 2021, respectively. At December 31, 2023, performance awards expected to vest totaled approximately 2 million shares, with a weighted-average grant-date fair value of $ 21.65 . The total grant-date fair value of performance awards vested during 2023, 2022, and 2021 was approximately $ 26 million, $ 27 million, and $ 14 million, respectively. Note 10— Earnings Per Share The following table reconciles basic and diluted earnings per common share: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands, except per share amounts) Basic: Net income $ 214,352 $ 393,913 $ 902,987 Weighted-average number of common shares 353,588 353,792 350,007 Basic net income per common share $ 0.61 $ 1.11 $ 2.58 Diluted: Net income $ 214,352 $ 393,913 $ 902,987 Weighted-average number of common shares 353,588 353,792 350,007 Dilutive share-based awards (a) 3,524 5,820 7,246 Weighted-average number of common and potential common shares 357,112 359,612 357,253 Diluted net income per common share $ 0.60 $ 1.10 $ 2.53 (a) Share-based awards totaling 10.4 million, 10.6 million and 12.1 million were excluded from the calculation of diluted net income per common share for the years ended December 31, 2023, 2022, and 2021 respectively, because their effect would be antidilutive. 80 Note 11— Fair Value Measurements The following tables present 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, 2023 and 2022 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. December 31, 2023 Level 1 Level 2 Level 3 Total (In thousands) Assets: Foreign currency forward exchange and other contracts (a) $ — $ 2,828 $ — $ 2,828 Liabilities: Foreign currency forward exchange and other contracts (a) $ — $ 9,564 $ — $ 9,564 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 (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. Other Financial Instruments Mattel's financial instruments included 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 were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy. The estimated fair value of Mattel's long-term debt was $ 2.23 billion (compared to a carrying amount of $ 2.35 billion) as of December 31, 2023 and $ 2.13 billion (compared to a carrying amount of $ 2.35 billion) as of December 31, 2022. 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. 81 Note 12— 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, 2023 and 2022, Mattel held foreign currency forward exchange contracts and other commodity derivative instruments, with notional amounts of approximately $ 609 million and $ 674 million, respectively. The following tables present Mattel's derivative assets and liabilities: Derivative Assets Balance Sheet Classification Fair Value December 31, 2023 December 31, 2022 (In thousands) Derivatives Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Prepaid expenses and other current assets $ 2,198 $ 14,899 Foreign currency forward exchange and other contracts Other noncurrent assets 52 1,501 Total Derivatives Designated as Hedging Instruments $ 2,250 $ 16,400 Derivatives Not Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Prepaid expenses and other current assets $ 578 $ 1,163 Total Derivatives Not Designated as Hedging Instruments $ 578 $ 1,163 $ 2,828 $ 17,563 Derivative Liabilities Balance Sheet Classification Fair Value December 31, 2023 December 31, 2022 (In thousands) Derivatives Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Accrued liabilities $ 7,520 $ 3,647 Foreign currency forward exchange and other contracts Other noncurrent liabilities 1,575 807 Total Derivatives Designated as Hedging Instruments $ 9,095 $ 4,454 Derivatives Not Designated as Hedging Instruments: Foreign currency forward exchange and other contracts Accrued liabilities $ 449 $ 6,261 Foreign currency forward exchange and other contracts Other noncurrent liabilities 20 39 Total Derivatives Not Designated as Hedging Instruments $ 469 $ 6,300 $ 9,564 $ 10,754 82 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 For the Year Ended Statements of Operations Classification December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Foreign currency forward exchange contracts: Amount of (losses) gains recognized in OCI $ ( 15,903 ) $ 40,449 $ 23,253 Amount of gains (losses) reclassified from accumulated OCI to the consolidated statements of operations 10,292 26,513 ( 912 ) Cost of sales The net gains (losses) reclassified from accumulated other comprehensive loss to the consolidated statements of operations during 2023, 2022, and 2021, respectively, were offset by changes in cash flows associated with the underlying hedged transactions. Derivatives Not Designated As Hedging Instruments For the Year Ended Statements of Operations Classification December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Amount of net gains (losses) recognized in the Statements of Operations: Foreign currency forward exchange and other contracts $ 19,939 $ ( 7,833 ) $ 2,872 Other non-operating (income) expense, net Foreign currency forward exchange and other contracts — — 639 Cost of sales $ 19,939 $ ( 7,833 ) $ 3,511 The net gains (losses) recognized in the consolidated statements of operations during 2023, 2022, and 2021, respectively, were offset by foreign currency transaction gains and losses on the related derivative balances. Note 13— 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. 83 Licensing and similar agreements in effect at December 31, 2023 contain provisions for future minimum payments as shown in the following table: Licensing and Similar Agreements (In thousands) 2024 $ 90,005 2025 93,713 2026 25,526 2027 24,906 2028 400 Thereafter — $ 234,550 Royalty expense for 2023, 2022, and 2021 was $ 249.8 million, $ 230.8 million, and $ 184.3 million, respectively. The following table shows the future minimum obligations for purchases of inventory, services, and other items as of December 31, 2023: Other Purchase Obligations (In thousands) 2024 $ 283,927 2025 49,949 2026 30,269 2027 25,301 2028 6,062 Thereafter — $ 395,508 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, 2023, 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, 2023 and 2022 totaled $ 12.2 million and $ 14.2 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. 84 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, 2023, Mattel assessed its probable loss related to this matter and has accrued a reserve, which is not material. 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. On February 13, 2024, the parties filed a notice of settlement informing the court that they have reached a settlement in principle of this litigation. The settlement in principle is subject to preliminary and final approval by the court. As of December 31, 2023, Mattel assessed its probable loss related to this matter and has accrued a reserve, which is not material. Thirty-one additional lawsuits filed between April 2019 and January 2024 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-four 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 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). 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. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time. Mattel has also had discussions with the U.S. 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. As of December 31, 2023, Mattel assessed its probable loss related to this matter and has accrued a reserve, which is not material. Note 14— 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 reportable segments are: (i) North America, which consists 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. 85 In February 2024, Mattel announced an organizational change that American Girl will become part of Mattel's North America commercial organization and, as a result, American Girl will no longer be an operating segment. Beginning in the first quarter of 2024, Mattel is expected to have two reportable segments, North America and International. The following tables present information regarding net sales, operating income, 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. For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Net Sales by Segment North America $ 3,003,218 $ 2,987,831 $ 2,968,278 International 2,230,783 2,220,001 2,219,189 American Girl 207,218 226,855 270,274 Net sales $ 5,441,219 $ 5,434,687 $ 5,457,741 Operating Income (Loss) by Segment (a) North America $ 793,444 $ 765,867 $ 872,536 International 299,084 295,840 349,952 American Girl ( 5,701 ) 199 5,409 1,086,827 1,061,906 1,227,897 Corporate and other expense (b) ( 525,168 ) ( 386,391 ) ( 498,335 ) Operating income 561,659 675,515 729,562 Interest expense 123,786 132,818 253,937 Interest (income) ( 25,238 ) ( 9,398 ) ( 3,503 ) Other non-operating (income) expense, net (c) ( 2,293 ) 47,760 8,364 Income before income taxes $ 465,404 $ 504,335 $ 470,764 (a) Segment operating income included (i) severance and other restructuring charges of approximately $( 1 ) million, $ 11 million, and $ 3 million for 2023, 2022, and 2021, respectively, which were allocated to the North America, International, and American Girl segments. (b) Corporate and other expense included (i) severance and other restructuring charges of approximately $ 61 million, $ 26 million, and $ 32 million for 2023, 2022, and 2021, respectively and (ii) inclined sleeper product recall litigation charges of approximately $ 18 million, $( 1 ) million, and $ 15 million for 2023, 2022, and 2021, respectively. (c) Other non-operating (income) expense, net includes $ 45.4 million of currency translation losses 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, 2023 December 31, 2022 December 31, 2021 (In thousands) Depreciation and Amortization by Segment North America $ 90,563 $ 87,454 $ 86,308 International 59,876 58,683 59,610 American Girl 6,893 10,631 12,508 157,332 156,768 158,426 Corporate and other 20,012 25,411 25,887 Depreciation and amortization $ 177,344 $ 182,179 $ 184,313 86 Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances. December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Assets by Segment North America $ 792,613 $ 778,897 $ 784,836 International 735,236 756,830 798,833 American Girl 52,500 58,833 52,168 1,580,349 1,594,560 1,635,837 Corporate and other 73,087 159,725 214,031 Accounts receivable and inventories, net $ 1,653,436 $ 1,754,285 $ 1,849,868 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, 2023 December 31, 2022 December 31, 2021 (In thousands) Net Sales by Geographic Area North America Region (a) $ 3,210,436 $ 3,214,686 $ 3,238,552 International Region EMEA 1,241,483 1,324,435 1,375,463 Latin America 658,018 590,963 519,610 Asia Pacific 331,282 304,603 324,116 Total International Region 2,230,783 2,220,001 2,219,189 Net sales $ 5,441,219 $ 5,434,687 $ 5,457,741 December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Long-Lived Assets North America Region (b) $ 337,527 $ 327,418 $ 366,519 International Region 441,187 460,394 414,931 Consolidated total $ 778,714 $ 787,812 $ 781,450 (a) Net sales for the North America Region include net sales attributable to the United States of $ 3.05 billion, $ 3.04 billion, and $ 3.07 billion for 2023, 2022, and 2021, respectively. (b) Long-lived assets for the North America Region include long-lived assets attributable to the United States of $ 319.3 million, $ 309.0 million, and $ 343.7 million for 2023, 2022, and 2021, respectively. Major Customers In 2023, net sales to Mattel's three largest customers accounted for 44 % of worldwide consolidated net sales. In 2023, net sales to Walmart, Target, and Amazon were $ 1.13 billion, $ 0.67 billion, and $ 0.60 billion, respectively. 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. 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. 87 Note 15— Restructuring Charges Optimizing for Growth (formerly Capital Light) Mattel's Optimizing for Growth program (the "OFG program") was a multi-year cost savings program that integrated and expanded upon the previously announced Capital Light program. In February 2023, the OFG program was expanded to include additional initiatives, including actions to further streamline Mattel's organizational structure. Mattel has concluded the OFG program as of December 31, 2023. 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 December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Cost of sales (a) $ ( 1,276 ) $ 10,685 $ 2,885 Other selling and administrative expenses (b) 32,302 23,592 32,266 $ 31,026 $ 34,277 $ 35,151 (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." The following tables summarize Mattel's severance and other restructuring charges activity within operating income related to the OFG program: Liability at December 31, 2022 Charges (a) Payments/Utilization Liability at December 31, 2023 (In thousands) Severance $ 9,355 $ 22,030 $ ( 27,122 ) $ 4,263 Other restructuring charges 3,540 8,996 ( 12,077 ) 459 $ 12,895 $ 31,026 $ ( 39,199 ) $ 4,722 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 (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, 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 $ 73.0 million of non-cash charges, including $ 45.4 million recorded in non-operating expense, net, during 2022, related to the liquidation of Mattel's subsidiary in Argentina. 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. 88 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. In connection with the OPG program, as of Decemeber 31, 2023, 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." The following table summarizes Mattel's severance charges activity related to the OPG program for the year ended December 31, 2023: Liability at December 31, 2022 Charges Payments/Utilization Liability at December 31, 2023 (In thousands) Severance $ — $ 25,296 $ ( 200 ) $ 25,096 As of December 31, 2023, Mattel expects to incur total cash expenditures under the OPG program of approximately $ 130 to $ 165 million and non-cash charges of up to $ 5 million. Other Cost Savings Actions In 2023, Mattel executed other cost savings actions 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. Note 16— Income Taxes Consolidated pre-tax income consists of the following: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) U.S. operations $ 150,361 $ 221,149 $ 9,612 Foreign operations 315,043 283,186 461,152 Consolidated pre-tax income excluding equity method investments $ 465,404 $ 504,335 $ 470,764 89 The provision (benefit) for current and deferred income taxes consists of the following: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Current Federal $ 8,256 $ — $ ( 9,819 ) State 4,669 2,359 ( 4,060 ) Foreign 79,843 62,278 81,899 92,768 64,637 68,020 Deferred Federal ( 24,711 ) 55,805 ( 229,217 ) State 1,986 2,440 ( 27,970 ) Foreign 199,432 12,969 ( 231,214 ) 176,707 71,214 ( 488,401 ) Provision (benefit) for income taxes $ 269,475 $ 135,851 $ ( 420,381 ) 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) consist of the following: December 31, 2023 December 31, 2022 (In thousands) Tax credit carryforwards $ 41,550 $ 67,451 Research and development expenses 104,582 44,323 Net operating loss carryforwards 77,321 91,704 Interest expense 65,045 79,720 Allowances and reserves 116,148 118,168 Deferred compensation 63,458 40,716 Postretirement benefits 22,741 23,227 Intangible assets 115 212,497 Lease liabilities 81,604 81,298 Other 35,509 35,308 Gross deferred income tax assets 608,073 794,412 Intangible assets ( 167,336 ) ( 175,077 ) Right-of-use assets ( 75,076 ) ( 73,757 ) Other ( 37,259 ) ( 39,260 ) Gross deferred income tax liabilities ( 279,671 ) ( 288,094 ) Deferred income tax asset valuation allowances ( 85,352 ) ( 89,841 ) Net deferred income tax assets $ 243,050 $ 416,477 Net deferred income tax assets are presented in the consolidated balance sheets as follows: December 31, 2023 December 31, 2022 (In thousands) Deferred income tax assets $ 299,157 $ 471,672 Other noncurrent liabilities ( 56,107 ) ( 55,195 ) $ 243,050 $ 416,477 90 As of December 31, 2023, Mattel had U.S. federal and foreign loss carryforwards totaling $ 289.1 million and U.S. federal, state, and foreign tax credit carryforwards of $ 44.4 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) 2024–2028 $ 10,085 $ 882 Thereafter 113,274 22,390 No expiration date 165,707 21,105 $ 289,066 $ 44,377 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 establishment of certain U.S. deferred tax assets, resulting in a reduction in intangible deferred tax assets and deferred tax liabilities and an increase in research and development deferred tax assets. 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. 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 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. 91 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, 2023 December 31, 2022 December 31, 2021 (In thousands) Provision at U.S. federal statutory rate $ 97,735 $ 105,910 $ 98,861 Differences resulting from: Changes in valuation allowances 2,343 — ( 540,803 ) Foreign earnings taxed at different rates, including foreign losses without benefit ( 12,844 ) 16,877 35,468 Tax related to pass-through income 3,869 5,340 2,487 Non deductible executive compensation 7,248 5,141 7,115 State and local taxes, net of U.S. federal benefit (expense) 8,480 5,027 ( 983 ) Adjustments to previously accrued taxes 9,943 ( 9,471 ) ( 19,101 ) Tax on undistributed earnings of foreign subsidiaries ( 1,000 ) 10,600 7,000 Research and development tax credit ( 7,248 ) ( 5,487 ) ( 5,350 ) Discrete tax impact due to intra-group IP transfer 161,388 — — Other ( 439 ) 1,914 ( 5,075 ) Provision (benefit) for income taxes $ 269,475 $ 135,851 $ ( 420,381 ) 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 with a taxing authority. 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. A reconciliation of the reserve for unrecognized tax benefits is as follows: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Unrecognized tax benefits at January 1 $ 114,057 $ 118,781 $ 140,309 Increases for positions taken in current year 5,855 5,034 5,113 Increases for positions taken in a prior year 18,831 8,037 3,658 Decreases for positions taken in a prior year ( 4,841 ) ( 7,315 ) ( 1,324 ) Decreases for settlements with taxing authorities ( 273 ) ( 1,236 ) ( 2,852 ) Decreases for lapses in the applicable statute of limitations ( 3,659 ) ( 9,244 ) ( 26,123 ) Unrecognized tax benefits at December 31 $ 129,970 $ 114,057 $ 118,781 Of the $ 130.0 million of unrecognized tax benefits as of December 31, 2023, $ 110.7 million would impact the effective tax rate if recognized, $ 10.1 million would result in an increase in the valuation allowance, and $ 9.2 million would result in an offset with a non-current asset account. 92 Mattel recognized an increase of interest and penalties of $ 1.5 million in 2023, a decrease of $ 5.3 million in 2022, and a decrease of $ 1.5 million in 2021, 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, 2023, Mattel accrued $ 17.3 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, 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. 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 2020 through 2023 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 2023 tax years, New York for the 2020 through 2023 tax years, and Wisconsin for the 2015 through 2023 tax years. Mattel files multiple foreign income tax returns and remains subject to examination in various foreign jurisdictions including Hong Kong for the 2017 through 2023 tax years, Mexico for the 2018 through 2023 tax years, Netherlands for the 2019 through 2023 tax years, Cyprus for the 2020 through 2023 tax years, China for the 2010 through 2023 tax years, and United Kingdom for the 2017 through 2023 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 $ 16.2 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 $ 23.0 million related to undistributed earnings of certain foreign subsidiaries of $ 0.56 billion as of December 31, 2023. During 2023, Mattel reported a distribution of foreign earnings to the United States for which taxes had been previously provided. Taxes have not been provided on approximately $ 1.05 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. 93 Note 17— Supplemental Financial Information December 31, 2023 December 31, 2022 (In thousands) Inventories included the following: Finished goods $ 478,707 $ 754,852 Raw materials and work in process 92,902 139,212 $ 571,609 $ 894,064 Accrued liabilities included the following: Incentive compensation $ 143,091 $ 2,889 Advertising and promotion 102,217 115,707 Royalties 86,475 65,330 Lease liabilities 77,254 75,297 For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (In thousands) Currency transaction gains (losses) included in: Operating income $ ( 14,921 ) $ ( 15,544 ) $ ( 10,212 ) Other non-operating income/expense, net 1,545 ( 11,550 ) ( 8,224 ) Currency transaction losses, net $ ( 13,376 ) $ ( 27,094 ) $ ( 18,436 ) Other selling and administrative expenses included the following: Design and development $ 198,603 $ 195,451 $ 189,372 Identifiable intangible asset amortization 37,893 37,602 38,039 Bad debt expense, net ( 1,502 ) 18,279 1,202 94 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.