What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-03-15 · 137 added, 179 removed, 377 unchanged (46% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with the consolidated financial statements and the related notes.

See Item 8 "Financial Statements and Supplementary Data." Note that amounts within this Item shown in millions may not foot due to rounding.

See Item 8 "Financial Statements and Supplementary Data." Amounts shown in millions or billions within this Item 7 may not sum due to rounding.

Mattel has omitted discussion of 2022 results where it would be redundant to the discussion previously included in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," of Mattel's Annual Report on Form 10-K for the year ended December 31, 2023.

14 unchanged sentences

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

Russia - Ukraine War

The ongoing war between Russia and Ukraine has led to volatility and disruption in these countries.

The length and impact of the ongoing war is highly unpredictable.

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

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

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

Recent Developments

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

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

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

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

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

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

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

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

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

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

During 2024, Mattel continued to execute its multi-year strategy to grow its IP-driven toy business and expand its entertainment offering, growing profitability, expanding gross margin, and generating strong cash flow.

Mattel's full year net sales declined 1%, which reflects a comparison with the benefits of the Barbie movie in the prior year.

Gross margin expanded to 50.8% in 2024 compared to 47.5% in 2023, with benefits from favorable supply chain and other efficiencies, the Optimizing for Profitable Growth program ("OPG program"), lower inventory management costs, cost deflation, and favorable foreign currency exchange and other factors, which more than offset the prior year benefit associated with the Barbie movie.

Operating income grew to $694.3 million, an improvement of $132.6 million, and earnings per share in 2024 increased to $1.58, compared to $0.60 in 2023.

Mattel ended the year with a cash balance of $1.39 billion, compared to $1.26 billion in the prior year.

Cash increased primarily due to Mattel's cash flows from operations, which were $800.6 million during the year.

Cash flows from operations were partially offset by $400.0 million of cash used for share repurchases and capital expenditures, including $58.8 million for the acquisition of a property that will serve as Mattel's new global design center, which will replace a facility that is currently leased.

During 2024, Mattel executed $400.0 million of share repurchases and has a remaining authorization of $600.0 million as of December 31, 2024.

Additionally, in February 2024, Mattel announced the OPG program, a multi-year cost savings program that follows the Optimizing for Growth program ("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 has targeted annual gross cost savings of $200.0 million between 2024 and 2026.

During 2024, Mattel generated approximately $83 million of cost savings under the OPG program.

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

18 unchanged sentences

Interest (income) (51.5) -1.0 % (25.2) -0.5 % 104 % (50)

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

Other non-operating expense (income), net 4.5 (2.3)

Income before income taxes 622.5 11.6 % 465.4 8.6 % 34 % 300

2 unchanged sentences

Net income $ 541.8 10.1 % $ 214.4 3.9 % 153 % 620

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

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

Net sales in 2024 were $5.38 billion, a decrease of $61.7 million, or 1%, as compared to $5.44 billion in 2023.

The decrease in net sales was primarily due to a decrease in gross billings of $68.6 million.

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

16 unchanged sentences

Hot Wheels 1,575.0 1,432.4 10 % -1 %

Fisher-Price 852.6 935.9 -9 % 1 %

Fisher-Price (a) 700.8 681.5 3 % -1 %

Other 2,407.4 2,450.2 -2 % — %

Gross Billings $ 6,033.3 $ 6,101.8 -1 % -1 %

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

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

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

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

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

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

(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products.

Prior period amounts have been reclassified to conform to the current presentation.

Gross billings were $6.03 billion in 2024, a decrease of $68.6 million, or 1%, as compared to $6.10 billion in 2023, with an unfavorable impact from changes in currency exchange rates of one percentage point.

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

Dolls gross billings decreased 8%, due to lower billings of Barbie, which benefited from the Barbie movie in the prior year.

Infant, Toddler, and Preschool gross billings decreased 5%, primarily due to lower billings of Baby Gear and Power Wheels products of 5%, due to the continued strategic exit from certain product lines in Power Wheels and Baby Gear.

Vehicles gross billings increased 9%, due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 2%, of which 6% was due to higher billings of Games products and 1% was due to higher billings of Action Figures products, partially offset by lower billings of Building Sets products of 2% and lower billings of Other products of 3%.

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

1 unchanged sentence

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

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

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

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

Sales adjustments decreased to $653.7 million in 2024, as compared to $660.6 million in 2023.

Sales adjustments as a percentage of net sales were relatively consistent at 12.2% in 2024, as compared to 12.1% in 2023.

Cost of Sales

Cost of sales decreased by $212.0 million, or 7%, to $2.65 billion in 2024 from $2.86 billion in 2023.

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

Within cost of sales, product and other costs decreased by $203.4 million, or 9%, to $2.08 billion in 2024 from $2.28 billion in 2023.

Royalty expense decreased by $5.7 million, or 2%, to $244.1 million in 2024 from $249.8 million in 2023.

Freight and logistics expenses decreased by $2.9 million, or 1%, to $324.1 million in 2024 from $327.0 million in 2023.

Gross margin increased to 50.8% in 2024 from 47.5% in 2023.

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

The increase in gross margin was primarily due to favorable supply chain and other efficiencies of 130 basis points, incremental realized savings from the OPG program of 90 basis points, lower inventory management costs of 60 basis points, including lower close-out sales and inventory obsolescence, cost deflation of 50 basis points, and favorable foreign currency exchange and other factors of 90 basis points, partially offset by unfavorable mix of 90 basis points primarily related to the prior year benefit from the Barbie movie.

Advertising and Promotion Expenses

1 unchanged sentence

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

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

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

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

Advertising and promotion expenses as a percentage of net sales were relatively flat at 9.4% in 2024, compared to 9.6% in 2023.

Other Selling and Administrative Expenses

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

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

Other selling and administrative expenses were $1.53 billion, or 28.5% of net sales, in 2024, an increase of $35.2 million, as compared to $1.50 billion, or 27.5% of net sales, in 2023.

The increase in other selling and administrative expenses was primarily due to employee compensation increases and higher incentive compensation of $65.6 million, partially offset by realized savings from cost savings programs of $30.8 million.

Interest Expense

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

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

Interest expense was $118.8 million in 2024, a decrease of $5.0 million as compared to $123.8 million in 2023.

Interest Income

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

Other Non-Operating (Income) Expense, Net

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

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

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

Interest income increased by $26.2 million to $51.5 million in 2024 from $25.2 million in 2023, primarily due to higher average invested cash balances in 2024.

Provision for Income Taxes

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

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

Mattel's provision for income taxes was $105.6 million in 2024, as compared to a provision for income taxes of $269.5 million in 2023.

The decrease in provision for income taxes was the result of the intra-group transfer of certain IP rights in the prior year, 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.

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

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

Additionally, in 2024, Mattel recognized a net income tax benefit of $34.8 million related to tax elections filed to amortize certain intangible assets transferred as part of Mattel’s intra-group IP rights transfer and establishment of certain U.S.

deferred tax assets, which was offset by higher income tax expense as a result of an increase in income before income taxes.

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.

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

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

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

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

Changes in the valuation allowances in 2024 primarily related to changes in assessment of the future realizability of certain deferred tax assets, utilization and expiration of tax attributes.

As of December 31, 2024, Mattel's valuation allowances on its U.S.

federal and state deferred tax assets and foreign deferred tax assets were approximately $12 million and $85 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.

As of December 31, 2024 and 2023, Mattel has recorded net deferred tax assets of $252.5 million and $243.1 million, respectively.

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

3 unchanged sentences

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

Mattel does not expect the provisions that went into effect in 2024 to have a materially adverse impact on its results of operations, financial position, or cash flows.

Segment Results

North America Segment

Beginning in the first quarter of 2024, Mattel's American Girl business was integrated into its North America commercial organization and is reported within the North America operating segment.

Prior to the first quarter of 2024, Mattel's American Girl business was a separate reportable operating segment.

Prior period amounts have been reclassified to conform to the current period presentation.

The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for 2024 and 2023:

6 unchanged sentences

Segment Operating Income 840.0 787.7 7 %

Net sales for the North America segment in 2023 were $3.00 billion, an increase of $15.4 million or 1%, as compared to $2.99 billion in 2022.

The increase in net sales was the result of an increase in gross billings of $32.2 million, partially offset by an increase in sales adjustments of $16.8 million.

Net sales for the North America segment in 2024 were $3.17 billion, a decrease of $42.4 million, or 1%, as compared to $3.21 billion in 2023.

The decrease in net sales was primarily due to a decrease in gross billings of $37.9 million.

For the Year Ended % Change as

13 unchanged sentences

Hot Wheels 741.3 690.8 7 % — %

Fisher-Price 532.0 584.5 -9 % — %

Fisher-Price (a) 421.3 404.9 4 % — %

Other 1,497.0 1,496.3 — % — %

Gross Billings $ 3,394.6 $ 3,432.5 -1 % — %

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

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

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

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

(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products.

Prior period amounts have been reclassified to conform to the current presentation.

Gross billings for the North America segment were $3.39 billion in 2024, a decrease of $37.9 million, or 1%, as compared to $3.43 billion in 2023.

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

Dolls gross billings decreased 6%, due to lower billings of Barbie, which benefited from the Barbie movie in the prior year.

Infant, Toddler, and Preschool gross billings decreased 6%, due to lower billings of Baby Gear and Power Wheels products.

Vehicles gross billings increased 6%, due to higher billings of Hot Wheels products.

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

Action Figures, Building Sets, Games, and Other gross billings increased 6%, of which 6% was due to higher billings of Action Figures products and 5% was due to higher billings of Games products, partially offset by lower billings of Building Sets products of 2% and lower billings of Other products of 2%.

Sales adjustments increased to $226.5 million in 2024, as compared to $222.1 million in 2023.

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

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

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

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

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

Sales adjustments as a percentage of net sales were relatively consistent at 7.1% in 2024 as compared to 6.9% in 2023.

Cost of sales decreased by $121.1 million, or 7%, to $1.60 billion in 2024 from $1.72 billion in 2023, primarily due to a decrease in product and other costs of $115.8 million.

Gross margin increased to 49.4% in 2024 from 46.3% in 2023, primarily due to supply chain and other efficiencies of 210 basis points, incremental realized savings from the OPG program of 90 basis points, lower inventory management costs of 60 basis points, including lower inventory obsolescence and close-out sales, and favorable other factors of 40 basis points, partially offset by unfavorable mix of 90 basis points primarily related to the prior year benefit from the Barbie movie.

North America segment operating income was $840.0 million in 2024, as compared to $787.7 million in 2023, due to higher gross profit of $78.7 million, partially offset by higher other selling and administrative expenses of $33.2 million.

International Segment

7 unchanged sentences

Segment Operating Income 389.0 299.1 30 %

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

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

Net sales for the International segment in 2024 were $2.21 billion, a decrease of $19.3 million, or 1%, as compared to $2.23 billion in 2023.

The decrease in net sales was due to a decrease in gross billings of $30.6 million, partially offset by a decrease in sales adjustments of $11.3 million.

For the Year Ended % Change as

13 unchanged sentences

Hot Wheels 833.7 741.6 12 % -2 %

Fisher-Price 320.6 351.4 -9 % 4 %

Fisher-Price (a) 279.5 276.5 1 % -2 %

Other 910.3 953.8 -5 % -1 %

Gross Billings $ 2,638.7 $ 2,669.4 -1 % -1 %

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

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

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

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

(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products.

Prior period amounts have been reclassified to conform to the current presentation.

Gross billings for the International segment were $2.64 billion in 2024, a decrease of $30.6 million, or 1%, as compared to $2.67 billion in 2023, with an unfavorable impact from changes in currency exchange rates of one percentage point.

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

Dolls gross billings decreased 10%, of which 8% was due to lower billings of Barbie primarily due to the benefit of the Barbie movie in the prior year.

Infant, Toddler, and Preschool gross billings decreased 4%, of which 3% was due to lower billings of Baby Gear and Power Wheels products.

Vehicles gross billings increased 12%, of which 11% was due to higher billings of Hot Wheels products.

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

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

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

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

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

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

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

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

American Girl Segment

The following table provides a summary of Mattel's net sales and segment operating income for the American Girl segment for 2023 and 2022:

For the Year Ended % Change as

Reported Currency

Exchange Rate

December 31, 2023 December 31, 2022

(In millions, except percentage information)

Net Sales $ 207.2 $ 226.9 -9 % — %

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

N/M - Not meaningful

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

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

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

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

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

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

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

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

Action Figures, Building Sets, Games, and Other gross billings decreased 3%, of which 5% was due to lower billings of Action Figures products and 3% was due to lower billings of Other products, partially offset by higher billings of Games products of 6%.

Sales adjustments decreased to $427.2 million in 2024, as compared to $438.6 million in 2023.

Sales adjustments as a percentage of net sales were relatively consistent at 19.3% in 2024 as compared to 19.7% in 2023.

Cost of sales decreased by $95.2 million, or 8%, to $1.14 billion in 2024 from $1.23 billion in 2023, primarily due to a decrease of product and other costs of $92.4 million.

Gross margin in 2024 increased to 48.5% from 44.7% in 2023, primarily due to incremental realized savings from the OPG program of 100 basis points, cost deflation of 100 basis points, lower inventory management costs of 70 basis points, including lower close-out sales and inventory obsolescence, favorable supply chain and other efficiencies of 60 basis points, and favorable foreign currency exchange and other factors of 160 basis points, partially offset by unfavorable mix of 110 basis points, primarily related to the prior year benefit from the Barbie movie.

International segment operating income was $389.0 million in 2024, as compared to $299.1 million in 2023, primarily due to higher gross profit of $75.9 million and lower advertising and promotion expenses of $10.8 million.

Cost Savings Programs

Optimizing for Growth (formerly Capital Light)

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

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

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

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

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

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

Optimizing for Growth – Actions Total Cost

Employee severance $55 million

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

Non-cash charges (a) $58 million

Total severance and restructuring costs $146 million

Information technology enhancements and other investments $82 million

Total actions $228 million

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

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

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

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

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

For the Year Ended

December 31, 2023

December 31, 2022

December 31, 2021

(In millions)

Cost of sales (a) $ (1.3) $ 10.7 $ 2.9

Other selling and administrative expenses (b) 32.3 23.6 32.3

$ 31.0 $ 34.3 $ 35.2

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

(b) Severance and other restructuring costs recorded within other selling and administrative expenses in the consolidated statements of operations are included in corporate and other expense in "Note 14 to the Consolidated Financial Statements—Segment Information."

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

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

During 2021, in conjunction with the OFG program, Mattel completed the sale of a manufacturing plant based in Mexico, which included land and buildings, resulting in a pre-tax gain of $15.8 million.

Optimizing for Profitable Growth

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

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

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

On February 7, 2024, Mattel announced the OPG program, a multi-year cost savings program that follows the Optimizing for Growth program (the "OFG program"), which concluded in the fourth quarter of 2023.

The OPG program is designed to achieve further efficiency and cost savings opportunities, primarily within Mattel's global supply chain, including its manufacturing footprint.

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, as well as savings from other previous actions taken in 2023 that were not recognized in the OFG program.

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

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

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

Total expected cash expenditures under the OPG program are expected to be between $130 and $165 million and total non-cash charges are expected to be up to $5 million.

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

3 unchanged sentences

Non-cash charges up to $5 million

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

Total estimated severance and other restructuring costs $100 to $130 million

Investments $30 to $40 million

Total estimated actions $130 to $170 million

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

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

In connection with the OPG 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

2024 December 31,

(In millions)

Cost of sales (a) $ 4.3 $ —

Other selling and administrative expenses (b) 44.9 25.3

$ 49.2 $ 25.3

As of December 31, 2024, Mattel had recorded cumulative severance and other restructuring charges related to the OPG program of approximately $74 million, which included approximately $2 million of non-cash charges.

Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $83 million, which represents approximately 60% benefit to cost of sales, and 40% benefit to other selling and administrative expenses, as of December 31, 2024, in connection with the OPG Program.

Other Cost Savings Actions

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

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

As of December 31, 2023, Mattel concluded the OFG program, a multi-year cost savings program that had integrated and expanded upon the previous Capital Light program.

During 2023 and 2022, Mattel recorded severance and other restructuring charges of $32.3 million and $23.6 million, respectively, within other selling and administrative expenses and $(1.3) million and $10.7 million, respectively, within cost of sales in the consolidated statement of operations in connection with the OFG program.

During 2023, Mattel executed actions to further streamline its organizational structure that were not included in the OFG program.

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

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

Liquidity and Capital Resources

Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, short-term borrowing facilities, including its $1.40 billion senior secured revolving credit facility (the "Revolving Credit Facility"), and access to capital markets to fund its operations and obligations.

Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, short-term borrowing facilities, including its $1.40 billion in aggregate principal amount of senior unsecured revolving credit facilities (the "Credit Facility"), which on July 15, 2024 replaced the $1.40 billion prior credit facility, and access to capital markets to fund its operations and obligations.

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

2 unchanged sentences

however, its movement out of Russia is currently limited.

In early 2022, Mattel paused all shipments into Russia.

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

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

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

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

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

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

6 unchanged sentences

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

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

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

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

At December 31, 2024, Mattel had no outstanding borrowings under the Credit Facility and approximately $9 million in outstanding letters of credit under the Credit Facility.

Market conditions could affect certain terms of other debt instruments that Mattel enters into from time to time.

13 unchanged sentences

Cash flows provided by operating activities were $800.6 million in 2024, as compared to $869.8 million in 2023.

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

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

The decrease in cash flows provided by operating activities was primarily due to an increase in cash used for working capital of $191.1 million, which included $285.8 million of unfavorable changes in inventories, reflecting the prior year impact of reduced inventory levels, and $86.1 million of unfavorable changes in accounts payable and accrued liabilities, partially offset by $219.7 million of favorable changes in accounts receivable.

The unfavorable changes to working capital were partially offset by an increase in net income, excluding the impact of non-cash items.

Cash flows used for investing activities were $189.0 million in 2024, as compared to $142.4 million in 2023.

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

The increase was primarily due to a $42.3 million increase in capital expenditures, including the July 2024 purchase of a property that will serve as Mattel's new global design center for $58.8 million.

Cash flows used for financing activities were $449.4 million in 2024, as compared to $226.6 million in 2023.

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

The increase in cash flows used for financing activities was primarily due to $197.0 million of higher share repurchases in 2024 compared to 2023.

During 2024, Mattel repurchased 21.0 million shares of its common stock at a cost of $400.0 million.

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

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

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.

As of December 31, 2024, Mattel had a remaining authorization of $600.0 million under the program.

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

5 unchanged sentences

Credit Ratings

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

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

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

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

In 2024, Fitch changed Mattel's credit rating from BB+ to BBB- with a stable outlook, Standard & Poor's changed Mattel's credit rating from BBB- to BBB with a stable outlook, and Moody's maintained Mattel's credit rating of Baa3 with a stable outlook.

Financial Position

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

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

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

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

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

Mattel's cash and equivalents increased $126.5 million to $1.39 billion at December 31, 2024, as compared to $1.26 billion at December 31, 2023, primarily due to cash flow provided by operating activities of $800.6 million, partially offset by share repurchases of $400.0 million and capital expenditures of $202.6 million.

Accounts receivable decreased $78.6 million to $1.00 billion at December 31, 2024, as compared to $1.08 billion at December 31, 2023, primarily due to the impact of foreign currency translation and the timing of sales and collections.

Inventories decreased $69.9 million to $501.7 million at December 31, 2024, as compared to $571.6 million at December 31, 2023, primarily due to continued inventory management efforts during 2024 and the impact of foreign currency translation.

Prepaid expenses and other current assets increased $26.6 million to $234.1 million at December 31, 2024, as compared to $207.5 million at December 31, 2023, primarily due to an increase in derivative receivables of $16.5 million.

Accounts payable and accrued liabilities decreased $30.9 million to $1.28 billion at December 31, 2024, as compared to $1.31 billion at December 31, 2023, primarily due to a decrease of $43.2 million in accounts payable, partially offset by an increase in accrued advertising expense of $18.1 million.

A summary of Mattel's capitalization is as follows:

11 unchanged sentences

Total capitalization (debt plus equity) $ 4,598.5 100 % $ 4,479.2 100 %

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

Total debt was $2.33 billion at December 31, 2024, flat as compared to $2.33 billion at December 31, 2023.

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

Stockholders' equity increased $114.9 million to $2.26 billion at December 31, 2024, as compared to $2.15 billion at December 31, 2023, primarily due to net income in 2024 of $541.8 million and the impact of share-based compensation on additional paid-in capital of $79.4 million, partially offset by share repurchases of $400.0 million and other comprehensive loss of $89.5 million.

Off-Balance Sheet Arrangements

1 unchanged sentence

Although the letters of credit are off-balance sheet, the majority of the obligations to which they relate are reflected as liabilities in the consolidated balance sheets.

Outstanding letters of credit totaled approximately $9 million and $8 million as of December 31, 2023 and 2022, respectively.

Outstanding letters of credit totaled approximately $9 million as of December 31, 2024 and 2023.

In the normal course of business, Mattel enters into contractual arrangements to obtain and protect Mattel's right to create and market certain products, and for future purchases of goods and services, including for the purchase of future inventory to ensure availability of materials.

25 unchanged sentences

In addition, the allowance requires a high degree of judgment since it involves estimation of the impact of both current and future economic factors in relation to its customers' ability to pay amounts owed to Mattel.

Significant changes in the assumptions used to develop the estimate could materially affect key financial measures, including other selling and administrative expenses, net income, and accounts receivable.

Significant changes in the assumptions used to develop the estimate could materially affect key financial statement line items, including other selling and administrative expenses, and accounts receivable.

Mattel's products are sold throughout the world.

23 unchanged sentences

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

For the year ended December 31, 2024, Mattel recorded a charge related to its allowance for credit losses of approximately $3 million, which was recognized as other selling and administrative expense.

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

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

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

If significant changes in the assumptions used to develop the estimates occur, they could materially affect key financial measures, including other selling and administrative expenses and accounts receivable.

If significant changes in the assumptions used to develop the estimates occur, they could materially affect key financial statement line items, including other selling and administrative expenses and accounts receivable.

A hypothetical 1% increase or decrease to the allowance for credit losses as a percentage of accounts receivable would have impacted 2024 and 2023 other selling and administrative expenses by approximately $10 million and $11 million, respectively.

5 unchanged sentences

As more fully described below, obsolescence reserves required for Mattel's inventory could be impacted by changes in public and consumer preferences, demand for product, or changes in the buying patterns of both retailers and consumers and inventory management of customers.

Significant changes in the assumptions used to develop the estimate could materially affect key financial measures, including gross profit, net income, and inventories.

Significant changes in the assumptions used to develop the estimate could materially affect key financial statement line items, including cost of sales and inventories.

In the toy industry, orders are typically subject to cancellation or change at any time prior to shipment.

3 unchanged sentences

Mattel ships products in accordance with delivery schedules specified by its customers, who usually request delivery within three months.

In anticipation of retail sales in the traditional holiday season, Mattel significantly increases its production in advance of the peak selling period, resulting in a corresponding build-up of inventory levels in the first three quarters of its fiscal year.

These seasonal purchasing patterns and requisite production lead times create risk to Mattel's business associated with the underproduction of popular toys and the overproduction of toys that do not match consumer demand.

5 unchanged sentences

Such economic changes may affect the sales of Mattel's products and its corresponding inventory levels, which could potentially impact the valuation of its inventory.

At the end of each quarter, management within each business segment, North America, International, and American Girl, performs a detailed review of its inventory on an item-by-item basis.

At the end of each quarter, management within each business segment, North America and International, performs a detailed review of its inventory on an item-by-item basis.

Management assesses the need for, and the amount of, an obsolescence reserve based on the following factors:

15 unchanged sentences

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

If significant changes in the assumptions used to develop the estimate occur, they could materially affect key financial measures, including cost of sales and inventories.

If significant changes in the assumptions used to develop the estimate occur, they could materially affect key financial statement line items, including cost of sales and inventories.

A hypothetical 1% increase or decrease to inventory reserves as a percentage of gross inventory at December 31, 2024 and 2023 would have impacted 2024 and 2023 cost of sales by approximately $5 million and $6 million, respectively.

1 unchanged sentence

Management believes that the accounting estimates related to the fair value estimates of its goodwill are "critical accounting estimates" because assessing goodwill for impairment involves a high degree of judgment due to the prospective assumptions that underlie the fair value assessments, such as projecting future cash flows for Mattel's reporting units and estimating the weighted-average cost of capital that a market participant would use as a discount rate.

Significant changes in the assumptions used in the goodwill impairment tests could materially affect key financial measures, including net income and goodwill.

For purposes of evaluating whether goodwill is impaired, goodwill is allocated to various reporting units, which are at the operating segment level.

Significant changes in the assumptions used in the goodwill impairment tests could materially affect key financial statement line items, including other selling and administrative expenses and goodwill.

Goodwill is allocated to reporting units for purposes of evaluating whether goodwill is impaired.

Mattel's reporting units are:

5 unchanged sentences

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

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

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

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

9 unchanged sentences

Management believes that the accounting estimates related to sales adjustments are "critical accounting estimates" because significant judgment is required to estimate related accruals, such as estimating future customer sales volume to support volume-based sales incentives, estimating volumes of defective products to support reserves for defective merchandise, and estimating future customer performance and consumer preferences that could impact the discretionary sales promotions.

Significant changes in the assumptions used to develop the estimates could impact Mattel's results of operations or financial condition.

Significant changes in the assumptions used to develop the estimates could materially affect key financial statement line items, including net sales and accounts receivable.

The above-described programs primarily involve fixed amounts or percentages of sales to customers.

5 unchanged sentences

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

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

A hypothetical 1% increase or decrease in Mattel's sales adjustments as a percentage of net sales during the years ended December 31, 2024 and 2023 would have impacted 2024 and 2023 net sales and accounts receivable by approximately $54 million.

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

9 unchanged sentences

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

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

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

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

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

Changes in the valuation allowances in 2024 primarily related to changes in assessment of the future realizability of certain deferred tax assets, utilization and expiration of tax attributes.

As of December 31, 2024, Mattel's valuation allowances on its U.S.

federal and state deferred tax assets and foreign deferred tax assets were approximately $12 million and $85 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.

As of December 31, 2024 and 2023, Mattel has recorded net deferred tax assets of $252.5 million and $243.1 million, respectively.

Mattel records unrecognized tax benefits for U.S.

3 unchanged sentences

Mattel recognizes unrecognized tax benefits in the first financial reporting period in which information becomes available indicating that such benefits will more likely than not (a greater than 50 percent likelihood) be realized.

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

As of December 31, 2024 and 2023, the unrecognized tax benefit balance, inclusive of interest and penalties, and net of U.S.

federal tax benefit was $151.7 million and $144.9 million, respectively.

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

15 unchanged sentences

The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year.

They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual foreign exchange rates.

They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual currency exchange rates.

Mattel considers whether any changes to the constant currency rates are appropriate at the beginning of each year.

The exchange rates used for these constant currency calculations are generally based on prior year actual exchange rates.

Mattel believes that the disclosure of the percentage impact of foreign currency changes is useful supplemental information for investors to be able to gauge Mattel's current business performance and the longer-term strength of its overall business since foreign currency changes could potentially mask underlying sales trends.

The disclosure of the percentage impact of foreign exchange allows investors to calculate the impact on a constant currency basis and also enhances their ability to compare financial results from one period to another.

Mattel believes that the disclosure of the percentage impact of currency changes is useful supplemental information for investors to be able to gauge Mattel's current business performance and the longer-term strength of its overall business since currency changes could potentially mask underlying sales trends.

The disclosure of the percentage impact of currency exchange allows investors to calculate the impact on a constant currency basis and also enhances their ability to compare financial results from one period to another.

Key Performance Indicator

4 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis