# Mattel Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Mattel Inc](/companies/mat.md) (CIK 63276)
- Form: 10-Q
- Filed: 2023-05-02
- Accepted by EDGAR: May 2, 2023, 21:06 ET
- Period: 2023-03-31
- Accession: 0001628280-23-014912
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/63276/000162828023014912/mat-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/63276/000162828023014912/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $814.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $488.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $325.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $48.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$115.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $31.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$27.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$106.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.30 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 354,942,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$206.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $34.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-03-31 | $461.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $2.37bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $5.83bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $969.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-03-31 | $2.33bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $1.94bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 47,754 characters.

In the discussion that follows, "Mattel" refers to Mattel, Inc. and/or one or more of its subsidiaries.

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q. Mattel's business is seasonal with consumers making a large percentage of all toy purchases during the traditional holiday season; therefore, results of operations are most comparable to corresponding periods.

The following discussion includes currency exchange rate impact, a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC ("Regulation G"), to supplement the financial results as reported in accordance with GAAP. The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates. Mattel uses this non-GAAP financial measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. Management believes that the disclosure of this non-GAAP financial measure provides useful supplemental information to investors to allow them to better evaluate ongoing business performance and certain components of Mattel's results. This measure is not, and should not be viewed as, a substitute for GAAP financial measures.

The following discussion also includes the use of gross billings, a key performance indicator. Gross billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products.

Note that amounts shown in millions or billions within this Item 2 may not sum due to rounding.

### Overview

Mattel is a leading global toy company and owner of one of the strongest catalogs of children's and family entertainment franchises in the world. Mattel creates innovative products and experiences that inspire, entertain, and develop children through play. Mattel is focused on the following evolved strategy to grow its intellectual property ("IP") driven toy business and expand its entertainment offering:

- Accelerate topline growth through scaling Mattel's portfolio, growing franchise brands, and advancing e-commerce and direct-to-consumer business, and increasing profitability by continuing to optimize operations; and
- Expand entertainment offering to capture the full value of Mattel's IP in highly accretive business verticals, including content, consumer products, and digital experiences.

Mattel is the owner of a portfolio of iconic brands and partners with global entertainment companies to license other IP. Mattel's portfolio of owned and licensed brands and products are organized into the following categories:

**Dolls—**including brands such as *Barbie, American Girl, Disney Princess* and *Frozen, Monster High*, and *Polly Pocket*. Mattel's Dolls portfolio is driven by the flagship *Barbie* brand and a collection of complementary brands offered globally. Empowering girls since 1959, *Barbie* has inspired the limitless potential of every girl by showing them that they can be anything. *American Girl*, with an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products, is best known for imparting valuable life lessons that instill confidence through its inspiring dolls and books, featuring diverse characters from past and present. *American Girl* products are sold directly to consumers through its website, proprietary retail stores in the United States, at select retailers nationwide, and its specialty boutiques and franchise stores in Canada.

**Infant, Toddler, and Preschool—**including brands such as *Fisher-Price* and *Thomas & Friends*, and *Power Wheels*. As a leader in play and child development, *Fisher-Price'*s mission is to help families by making the most fun, enriching products for infants, toddlers, and preschoolers. *Thomas & Friends* is an award-winning preschool train brand franchise that brings meaningful life lessons of friendship and teamwork to kids through toys, content, live events, and other consumer products.

**Vehicles—**including brands such as *Hot Wheels* (including *Hot Wheels Monster Trucks* and *Hot Wheels Mario Kart (Nintendo)), Matchbox*, and *Cars (Disney Pixar).* In production for over 50 years, *Hot Wheels* continues to push the limits of performance and design and ignites the challenger spirit of kids, adults, and collectors. From die-cast vehicles to tracks, playsets, and accessories, the Mattel Vehicles portfolio has broad appeal that engages and excites kids of all ages.

**Action Figures, Building Sets, Games, and Other—**including brands such as *Masters of the Universe, MEGA, UNO, Lightyear (Disney Pixar), Jurassic World (NBCUniversal), WWE,* and *Star Wars (Disney's Lucasfilm).* Mattel's Action Figures portfolio is comprised of product lines associated with licensed entertainment franchises that are driven by major tentpole releases, such as *Lightyear* and *Jurassic World,* as well as product lines from Mattel's owned IP, such as *Masters of the Universe.* As the challenger brand in Building Sets, *MEGA* sparks creativity through the power of connection with builders of all ages and fans of global franchises. Within Games, *UNO* is the classic matching card game that is easy to learn and fast fun for everyone. Other includes Plush, which contains products associated with movie releases from licensed entertainment franchises, as well as Mattel-owned IP.

### Recent Developments

As anticipated, Mattel's first quarter 2023 results were negatively impacted by elevated retail inventory levels. While consumer demand for Mattel's products, excluding Russia, was positive, net sales in the first quarter of 2023 were approximately $815 million, a decrease of 22% as compared to the first quarter of the prior year, and Mattel incurred an operating loss of approximately $115 million. The first quarter declines were primarily due to the negative impact from retailers managing their inventory levels, which were elevated entering the year, and also due to the comparison to the prior year first quarter, which benefited from retailers building their inventory levels earlier in the year.

Mattel's gross margin also declined during the first quarter of 2023, primarily due to inventory management efforts, including higher close-out sales and inventory obsolescence, cost inflation, unfavorable fixed cost absorption associated with lower sales volume, product mix, and other factors. These negative factors were partially offset by favorable pricing actions and incremental realized savings from the Optimizing for Growth program.

Although operating results were below prior year, Mattel believes the retail inventories will normalize by the end of the first half of 2023, and anticipates a return to shipping patterns more aligned with historical trends in the second half of 2023.

In the first quarter of 2023, Mattel resumed share repurchase activities, with $34 million of share repurchases under the existing share repurchase program, which has a remaining authorization of $169 million as of March 31, 2023.

To the extent the existing macro-economic environment remains challenging, or worsens, it may have a material effect on Mattel's results of operations and financial condition. Refer to Part I, Item 1A "Risk Factors" in the 2022 Annual Report on Form 10-K for further discussion regarding potential impacts on Mattel's business.

### 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 and Mattel paused all shipments into Russia in early 2022. Mattel's net sales in these two countries represented less than 3% of total net sales during the three months ended March 31, 2022.

### Results of Operations—First Quarter

#### Consolidated Results

The following table includes Mattel's consolidated results for the first quarter of 2023 and 2022:

*(In millions, except percentage and basis point information)*

| March 31, 2023 Amount | For the Three Months Ended % of Net Sales | Amount | March 31, 2022 | % of Net Sales% | Year/Year Change Basis Points of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $814.6 |  | $1,041.3 |  | -22% | — |
| Cost of sales | 488.8 | 60.0% | 558.4 | 53.6% | -12% | 640 |
| Gross profit | 325.8 | 40.0% | 482.9 | 46.4% | -33% | (640) |
| Advertising and promotion expenses | 76.0 | 9.3% | 73.8 | 7.1% | 3% | 220 |
| Other selling and administrative expenses | 364.8 | 44.8% | 329.1 | 31.6% | 11% | 1,320 |
| Operating (loss) income | (115.0) | -14.1% | 80.1 | 7.7% | N/M | N/M |
| Interest expense | 31.1 | 3.8% | 33.0 | 3.2% | -6% | 60 |
| Interest (income) | (6.5) | -0.8% | (1.2) | -0.1% | 442% | (70) |
| Other non-operating (income) expense, net | (1.4) |  | 9.1 |  |  |  |
| (Loss) income before income taxes | (138.2) | -17.0% | 39.1 | 3.8% | N/M | N/M |
| (Benefit) provision for income taxes | (27.0) |  | 23.9 |  |  |  |
| (Income) from equity method investment | (4.7) |  | (6.3) |  |  |  |
| Net (loss) income | $(106.5) | -13.1% | $21.5 | 2.1% | N/M | N/M |

#### N/M - Not meaningful

#### Sales

Net sales in the first quarter of 2023 were $814.6 million, a decrease of $226.7 million, or 22%, as compared to $1.04 billion in the first quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $253.1 million, partially offset by a decrease in sales adjustments of $26.3 million.

Gross billings represent amounts invoiced to a customer and do not include the impact of sales adjustments, such as trade discounts and other allowances. Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products. The following table provides a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for the first quarter of 2023 and 2022:

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Three Months Ended March 31, 2023 | March 31, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $306.1 | $396.1 | -23% | -1% |
| Infant, Toddler, and Preschool | 150.2 | 205.5 | -27% | -1% |
| Vehicles | 283.6 | 282.1 | 1% | —% |
| Action Figures, Building Sets, Games, and Other | 171.5 | 280.7 | -39% | -1% |
| Gross Billings | $911.3 | $1,164.4 | -22% | -1% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $176.9 | $298.0 | -41% | -1% |
| Hot Wheels | 244.9 | 241.4 | 1% | -1% |
| Fisher-Price | 125.7 | 171.3 | -27% | -1% |
| Other | 363.9 | 453.8 | -20% | -1% |
| Gross Billings | $911.3 | $1,164.4 | -22% | -1% |

Gross billings were $911.3 million in the first quarter of 2023, a decrease of $253.1 million, or 22%, as compared to $1.16 billion in the first quarter of 2022, with an unfavorable impact from changes in currency exchange rates of one percentage point. The decrease in gross billings was primarily due to lower billings of Action Figures, Building Sets, Games, and Other, Dolls, and Infant, Toddler and Preschool.

Dolls gross billings decreased 23%, of which 31% was due to lower billings of *Barbie* products and 3% was due to lower billings of *Enchantimals* products, partially offset by higher billings of *Disney Princess* and *Frozen* products of 10% and *Monster High* products of 6%.

Infant, Toddler, and Preschool gross billings decreased 27%, of which 22% was due to lower billings of *Fisher-Price* products and 3% was due to lower billings of *Fisher-Price Friends* products.

Vehicles gross billings increased 1%, due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 39%, of which 16% was due to lower billings of *Jurassic World* products and 5% was due to lower billings of *Lightyear* products following their 2022 theatrical releases, 8% was due to lower billings of other Action Figures products, 6% was due to lower billing of Games products, and 3% was due to lower billings of Building Sets.

Sales adjustments represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. Sales adjustments decreased to $96.8 million in the first quarter of 2023, as compared to $123.1 million in the first quarter of 2022, due to lower gross billings. Sales adjustments as a percentage of net sales was relatively flat at 11.9% in the first quarter of 2023, as compared to 11.8% in the first quarter of 2022.

#### Cost of Sales

Cost of sales decreased by $69.6 million, or 12%, to $488.8 million in the first quarter of 2023 from $558.4 million in the first quarter of 2022. Within cost of sales, product and other costs decreased by $61.6 million, or 14%, to $386.8 million in the first quarter of 2023 from $448.4 million in the first quarter of 2022; royalty expense decreased by $8.2 million, or 18%, to $36.7 million in the first quarter of 2023 from $44.9 million in the first quarter of 2022; and freight and logistics expenses were relatively consistent at $65.3 million in the first quarter of 2023, as compared to $65.1 million in the first quarter of 2022.

#### Gross Margin

Gross margin decreased to 40.0% in the first quarter of 2023 from 46.4% in the first quarter of 2022. The decrease in gross margin was primarily due to inventory management efforts of 420 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 210 basis points, unfavorable fixed cost absorption of 140 basis points, and unfavorable product mix and other of 140 basis points. These negative factors were partially offset by favorable pricing actions of 120 basis points and incremental realized savings from the Optimizing for Growth program of 120 basis points.

#### Advertising and Promotion Expenses

Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs, (iii) retail advertising costs, which include consumer direct catalogs, and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales increased to 9.3% in the first quarter of 2023, as compared to 7.1% in the first quarter of 2022, primarily due to the 22% decrease in net sales.

#### Other Selling and Administrative Expenses

Other selling and administrative expenses were $364.8 million, or 44.8% of net sales, in the first quarter of 2023, an increase of $35.7 million, as compared to $329.1 million, or 31.6% of net sales, in the first quarter of 2022. The increase in other selling and administrative expenses was primarily due to market-related pay increases of $17.8 million, higher severance and restructuring charges of $17.1 million, and information technology and administrative costs of $8.2 million, partially offset by incremental realized savings from the Optimizing for Growth program of $11.4 million.

#### Interest Expense

Interest expense was $31.1 million in the first quarter of 2023, as compared to $33.0 million in the first quarter of 2022. The decrease in interest expense was due to the $250.0 million repayment of the 2013 3.15% Senior Notes due March 2023 in the fourth quarter of 2022.

#### (Benefit) Provision for Income Taxes

Mattel's benefit for income taxes was $27.0 million in the first quarter of 2023, compared to a provision of $23.9 million in the first quarter of 2022. During the three months ended March 31, 2023 and 2022, Mattel recognized a net discrete tax expense of $0.1 million and $12.2 million, respectively, primarily related to (i) undistributed earnings of certain foreign subsidiaries and (ii) reassessments of prior years' tax liabilities.

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 three months ended March 31, 2023 and 2022, Mattel's valuation allowance position remained unchanged.

### Segment Results

#### North America Segment

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

*(In millions, except percentage information)*

|  | For the Three Months Ended March 31, 2023 | March 31, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $437.0 | $602.1 | -27% | —% |
| Segment Operating Income | 43.9 | 171.4 | -74% |  |

Net sales for the North America segment in the first quarter of 2023 were $437.0 million, a decrease of $165.1 million, or 27%, as compared to $602.1 million in the first quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $173.2 million, partially offset by a decrease in sales adjustments of $8.1 million.

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Three Months Ended March 31, 2023 | March 31, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $132.9 | $182.2 | -27% | —% |
| Infant, Toddler, and Preschool | 87.2 | 131.5 | -34% | —% |
| Vehicles | 142.2 | 146.8 | -3% | —% |
| Action Figures, Building Sets, Games, and Other | 106.3 | 181.3 | -41% | —% |
| Gross Billings | $468.5 | $641.8 | -27% | —% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $89.5 | $164.0 | -45% | —% |
| Hot Wheels | 119.7 | 121.7 | -2% | -1% |
| Fisher-Price | 75.4 | 112.5 | -33% | —% |
| Other | 184.0 | 243.6 | -24% | —% |
| Gross Billings | $468.5 | $641.8 | -27% | —% |

Gross billings for the North America segment were $468.5 million in the first quarter of 2023, a decrease of $173.2 million, or 27%, as compared to $641.8 million in the first quarter of 2022. The decrease in the North America segment gross billings was due to lower billings across all categories.

Dolls gross billings decreased 27%, of which 41% was due to lower billings of *Barbie* products, partially offset by higher billings of *Disney Princess* and *Frozen* products of 9% and higher billings of *Monster High* products of 9%.

Infant, Toddler, and Preschool gross billings decreased 34%, of which 29% was due to lower billings of *Fisher-Price* products and 2% was due to lower billings of *Fisher-Price Friends* products.

Vehicles gross billings decreased 3%, of which 1% was due to lower billings of *Hot Wheels* products and 1% was due to lower billings of *Matchbox* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 41%, of which 19% was due to lower billings of *Jurassic World* products and 7% was due to lower billings of *Lightyear* products following their 2022 theatrical releases, 8% was due to lower billings of other Action Figures products, 5% was due to lower billings of Games products, and 2% was due to lower billings of Building Sets.

Sales adjustments decreased to $31.5 million in the first quarter of 2023, as compared to $39.7 million in the first quarter of 2022, due to lower gross billings. Sales adjustments as a percentage of net sales increased to 7.2% for the first quarter of 2023, as compared to 6.6% for the first quarter of 2022. The increased rate was due to a higher proportion of sales in lines of business with higher average sales adjustment rates.

Cost of sales decreased by $44.6 million, or 14%, to $276.2 million in the first quarter of 2023 from $320.7 million in the first quarter of 2022, primarily due to a decrease in product and other costs of $36.6 million and a decrease in royalty expense of $8.5 million.

Gross margin in the first quarter of 2023 decreased to 36.8% from 46.7% in the first quarter of 2022, primarily due to inventory management efforts of 440 basis points, including higher close-out sales and inventory obsolescence, product mix and other of 400 basis points, cost inflation of 220 basis points, and fixed cost absorption of 160 basis points. These negative factors were partially offset by favorable pricing actions of 110 basis points and incremental realized savings from the Optimizing for Growth program of 90 basis points.

North America segment operating income was $43.9 million in the first quarter of 2023, as compared to segment operating income of $171.4 million in the first quarter of 2022. The decrease was primarily due to lower gross profit.

#### International Segment

The following tables provide a summary of net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the International segment for the first quarter of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Three Months Ended March 31, 2023 | March 31, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $344.1 | $403.8 | -15% | -2% |
| Segment Operating Income | 0.3 | 46.8 | -99% |  |

Net sales for the International segment in the first quarter of 2023 were $344.1 million, a decrease of $59.7 million, or 15%, as compared to $403.8 million in the first quarter of 2022. The decrease in net sales was the result of decreases in gross billings of $77.7 million, partially offset by a decrease in sales adjustments of $18.0 million.

*(In millions, except percentage information)*

| Gross Billings by Categories | For the Three Months Ended March 31, 2023 | March 31, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Dolls | $138.9 | $177.6 | -22% | -2% |
| Infant, Toddler, and Preschool | 63.0 | 74.0 | -15% | -3% |
| Vehicles | 141.5 | 135.3 | 5% | -1% |
| Action Figures, Building Sets, Games, and Other | 65.2 | 99.4 | -34% | -1% |
| Gross Billings | $408.6 | $486.3 | -16% | -2% |
| **Supplemental Gross Billings Disclosure** |  |  |  |  |
| **Gross Billings by Top 3 Power Brands** |  |  |  |  |
| Barbie | $87.3 | $134.0 | -35% | -3% |
| Hot Wheels | 125.2 | 119.7 | 5% | -1% |
| Fisher-Price | 50.3 | 58.7 | -14% | -2% |
| Other | 145.7 | 173.9 | -16% | -1% |
| Gross Billings | $408.6 | $486.3 | -16% | -2% |

Gross billings for the International segment were $408.6 million in the first quarter of 2023, a decrease of $77.7 million, or 16%, as compared to $486.3 million in the first quarter of 2022, with an unfavorable impact from changes in currency exchange rates of two percentage points. The decrease in the International segment gross billings was due to lower billings of Dolls, Action Figures, Building Sets, Games, and Other, and Infant, Toddler and Preschool, partially offset by higher billings of Vehicles.

Dolls gross billings decreased 22%, of which 27% was due to lower billings of *Barbie* products and 7% was due to lower billings of *Enchantimals* products, partially offset by higher billings of *Disney Princess* and *Frozen* products of 12% and higher billings of *Monster High* products of 5%.

Infant, Toddler, and Preschool gross billings decreased 15%, of which 11% was due to lower billings of *Fisher-Price* products and 5% was due to lower billings of *Fisher Price Friends* products.

Vehicles gross billings increased 5% due to higher billings of *Hot Wheels* products.

Action Figures, Building Sets, Games, and Other gross billings decreased 34%, of which 10% was due to lower billings of *Jurassic World* products and 3% was due to lower billings of *Lightyear* products following their 2022 theatrical releases, 9% was due to lower billings of Games products, 6% was due to lower billings of other Action Figures products, and 5% was due to lower billings of Building Sets.

Sales adjustments decreased to $64.5 million in the first quarter of 2023, as compared to $82.4 million in the first quarter of 2022, due to lower gross billings. Sales adjustments as a percentage of net sales decreased to 18.7% in the first quarter of 2023, as compared to 20.4% in the first quarter of 2022. The decrease was due to lower sales in markets with higher average sales adjustment rates.

Cost of sales decreased by $19.2 million, or 9%, to $201.7 million in the first quarter of 2023 from $220.8 million in the first quarter of 2022, primarily due to a decrease in product and other costs of $18.9 million, as a result of lower net sales.

Gross margin decreased to 41.4% in the first quarter of 2023 from 45.3% in the first quarter of 2022, primarily due to inventory management efforts of 420 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 210 basis points, and unfavorable fixed cost absorption of 100 basis points. These negative factors were partially offset by incremental realized savings from the Optimizing for Growth program of 170 basis points and favorable pricing actions of 140 basis points.

International segment operating income was $0.3 million in the first quarter of 2023, as compared to segment operating income of $46.8 million in the first quarter of 2022, primarily due to lower gross profit.

#### American Girl Segment

The following table provides a summary of net sales and segment operating loss for the American Girl segment for the first quarter of 2023 and 2022:

*(In millions, except percentage information)*

|  | For the Three Months Ended March 31, 2023 | March 31, 2022 | % Change as Reported | Currency Exchange Rate Impact |
| --- | ---: | ---: | ---: | ---: |
| Net Sales | $33.5 | $35.3 | -5% | —% |
| Segment Operating Loss | (11.8) | (17.2) | -32% |  |

Net sales for the American Girl segment in the first quarter of 2023 were $33.5 million, a decrease of $1.9 million, or 5%, as compared to $35.3 million in the first quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $2.1 million, or 6%, to $34.2 million in the first quarter of 2023 from $36.3 million in the first quarter of 2022. The decrease was primarily due to lower billings of Girl of the Year dolls of $4.8 million, partially offset by higher billings of historical character dolls products of $1.6 million.

Sales adjustments were $0.8 million in the first quarter of 2023, as compared to $1.0 million in the first quarter of 2022.

Cost of sales decreased by $1.5 million, or 8%, to $16.5 million in the first quarter of 2023, as compared to a 5% decrease in net sales, primarily due to a decrease in product and other costs of $1.3 million.

Gross margin increased to 50.8% in the first quarter of 2023 from 49.2% in the first quarter of 2022, primarily due to favorable pricing actions of 160 basis points and incremental realized savings from the Optimizing for Growth program of 130 basis points, partially offset by cost inflation of 160 basis points.

American Girl segment operating loss was $11.8 million in the first quarter of 2023, as compared to $17.2 million in the first quarter of 2022, primarily due to a decrease in other selling and administrative expenses of $3.2 million and a decrease in advertising and promotion expenses of $2.5 million.

### Cost Savings Program

#### Optimizing for Growth (formerly Capital Light)

In February 2021, Mattel announced the Optimizing for Growth program, a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program (the "Program"), which had targeted annual gross cost savings of $250 million from actions expected to be completed beginning 2021 through 2023. In February 2023, Mattel expanded the Program and increased the targeted annual gross cost savings from $250 million to $300 million, reflecting additional initiatives, including actions to further streamline Mattel's organizational structure. The additional initiatives are estimated to result in incremental employee severance charges of $20 to $25 million during 2023.

Of the $300 million in targeted gross cost savings, approximately 60% is expected to benefit cost of sales, 30% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses. Estimated total cash expenditures associated with the Program, excluding previous actions taken under the Capital Light program, are expected to be approximately $155 to $185 million.

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

| Optimizing for Growth - Actions | Estimate of Cost |
| --- | --- |
| Employee severance | $50 to $60 million |
| Real estate/supply chain optimization and other restructuring costs | $30 to $40 million |
| Non-cash charges (a) | $55 to $60 million |
| **Total estimated severance and restructuring costs** | **$135 to $160 million** |
| Information technology enhancements and other investments | $75 to $85 million |
| **Total estimated actions** | **$210 to $245 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 the fourth quarter of 2022 as a result of Mattel's liquidation of its subsidiary in Argentina, which was substantially completed in 2022.*

Cumulatively, in conjunction with previous actions taken under the Capital Light program prior to 2021, targeted annual gross cost savings for the Program are $375 million by 2023, with total expected cash expenditures of approximately $195 to $225 million, and total expected non-cash charges of approximately $75 million. Of the $375 million in targeted annual gross cost savings, approximately 65% is expected to benefit cost of sales, 25% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses.

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

*(In millions)*

|  | For the Three Months Ended March 31, 2023 | March 31, 2022 |
| --- | ---: | ---: |
| Cost of sales (a) | $— | $2.7 |
| Other selling and administrative expenses (b) | 20.7 | 6.4 |
|  | $20.7 | $9.1 |

(a) *Severance and other restructuring costs recorded within cost of sales in the consolidated statements of operations are included in segment operating (loss) income in "Note 21 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 21 to the Consolidated Financial Statements—Segment Information."*

As of March 31, 2023, Mattel has recorded cumulative severance and other restructuring charges related to the Program of approximately $186 million, which include approximately $73 million of non-cash charges. Non-cash charges include $45.4 million recorded in non-operating expense, net, during 2022 related to the liquidation of Mattel's subsidiary in Argentina. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $300 million, which represents approximately 75% benefit to cost of sales, 20% benefit to other selling and administrative expenses, and 5% benefit to advertising and promotion expenses, as of March 31, 2023, in connection with the Program.

#### Other Cost Savings Actions

During the three months ended March 31, 2023, Mattel executed additional actions to further streamline its organizational structure that were not included in the Program. In connection with these actions, severance costs of $3.2 million were recorded within other selling and administrative expenses in the consolidated statement of operations.

### 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 Revolving 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. Of Mattel's $461.7 million in cash and equivalents at March 31, 2023, approximately $289.1 million was held by foreign subsidiaries, including $65.0 million held in Russia. Mattel's cash held in Russia can be used within the country, however, its movement out of Russia is currently limited.

Cash flows from operating activities could be negatively impacted by decreased demand for Mattel's products, which could result from factors such as, but not limited to, adverse economic conditions and changes in public and consumer preferences, or by increased costs associated with manufacturing and distribution of products or shortages in raw materials or component parts. Additionally, Mattel's ability to issue long-term debt and obtain seasonal financing could be adversely affected by factors such as, but not limited to, global economic crises and tight credit environments, an inability to comply with its debt covenants and its Revolving Credit Facility covenants, or deterioration of Mattel's credit ratings. However, based on Mattel's current business plan and factors known to date, it is expected that existing cash and equivalents, cash flows from operations, availability under the Revolving Credit Facility, and access to capital markets, will be sufficient to meet working capital and operating expenditure requirements for the next twelve months and in the long-term.

#### Current Market Conditions

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

Consistent with prior periods, Mattel intends to utilize its existing cash and cash equivalents, cash flow from operations, and borrowing under the Revolving Credit Facility to meet its short-term liquidity needs. At March 31, 2023, Mattel had no outstanding borrowings under the Revolving Credit Facility and approximately $8 million in outstanding letters of credit under the Revolving Credit Facility.

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

Mattel monitors the third-party depository institutions that hold Mattel's cash and equivalents. Mattel's emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks.

Mattel is subject to credit risks relating to the ability of its counterparties in hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and nonperformance have been considered in the fair value measurements of Mattel's foreign currency forward exchange contracts. Mattel closely monitors its counterparties and takes action, as necessary, to manage its counterparty credit risk.

Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity required to buy inventory or raw materials. Mattel monitors its customers' financial condition and their liquidity in order to mitigate accounts receivable collectability risks, and customer terms and credit limits are adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to ensure collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

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

#### Cash Flow Activities

Cash flows used for operating activities were $206.4 million in the first quarter of 2023, as compared to $143.8 million in the first quarter of 2022. The increase was primarily due to changes in net earnings, excluding the impact of non-cash items, partially offset by $78.7 million of lower working capital usage.

Cash flows used for investing activities were $42.5 million in the first quarter of 2023, as compared to $55.0 million in the first quarter of 2022. The decrease was primarily due to lower net payments of $20.7 million of foreign currency forward exchange contracts, partially offset by an increase in capital expenditures of $7.0 million in the first quarter of 2023.

Cash flows used for financing activities were $53.2 million in the first quarter of 2023, as compared to $4.2 million in the first quarter of 2022. The increase in cash flows used for financing activities was primarily due to share repurchases of $34.0 million, and lower proceeds from stock option exercises of $11.9 million in the first quarter of 2023.

#### Seasonal Financing

See Part I, Item 1 "Financial Statements—Note 8 to the Consolidated Financial Statements—Seasonal Financing" of this Quarterly Report on Form 10-Q.

#### Financial Position

Mattel's cash and equivalents decreased $299.5 million to $461.7 million at March 31, 2023, as compared to $761.2 million at December 31, 2022, primarily due to cash flows used for operating activities of $206.4 million, capital expenditures of $43.0 million, and share repurchases of $34.0 million during the three months ended March 31, 2023. Mattel's cash and equivalents decreased $74.9 million to $461.7 million at March 31, 2023, as compared to $536.6 million at March 31, 2022. The decrease was primarily due to the repayment of the $250.0 million aggregate principal amount of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022, capital expenditures of $193.5 million in the trailing twelve months, and share repurchases of $34.0 million in the first quarter of 2023, partially offset by cash flows generated from operating activities of $380.3 million and proceeds from the sale of assets/business of $39.8 million in the trailing twelve months.

Accounts receivable decreased $186.4 million to $673.8 million at March 31, 2023, as compared to $860.2 million at December 31, 2022, primarily due to seasonal declines as year-end receivables are collected. Accounts receivable decreased $188.4 million to $673.8 million at March 31, 2023, as compared to $862.2 million at March 31, 2022, primarily due to the decline in net sales in the first quarter of 2023.

Inventories increased $67.0 million to $961.0 million at March 31, 2023, as compared to $894.1 million at December 31, 2022, primarily due to seasonal inventory build. Inventories were $961.0 million at March 31, 2023, relatively flat as compared to $969.2 million at March 31, 2022.

Prepaid expenses and other current assets increased $56.2 million to $269.7 million at March 31, 2023, as compared to $213.5 million at December 31, 2022. The increase in prepaid expenses and other current assets included increases in prepaid taxes of $22.5 million, other current assets of $18.8 million, and prepaid insurance and maintenance of $13.0 million. Prepaid expenses and other current assets were $269.7 million at March 31, 2023, relatively flat as compared to $267.7 million at March 31, 2022.

Accounts payable and accrued liabilities decreased $194.7 million to $955.5 million at March 31, 2023, as compared to $1.15 billion at December 31, 2022, due to seasonal declines in expenditure levels. Accounts payable and accrued liabilities decreased $322.5 million to $955.5 million at March 31, 2023, as compared to $1.28 billion at March 31, 2022, primarily due to lower payables associated with inventory production and lower accrued incentive compensation of $126.8 million.

A summary of Mattel's capitalization is as follows:

*(In millions, except percentage information)*

|  | March 31, 2023 |  | March 31, 2022 |  | December 31, 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cash and equivalents | $461.7 |  | $536.6 |  | $761.2 |  |
| 2010 Senior Notes due October 2040 | 250.0 |  | 250.0 |  | 250.0 |  |
| 2011 Senior Notes due November 2041 | 300.0 |  | 300.0 |  | 300.0 |  |
| 2013 Senior Notes due March 2023 | — |  | 250.0 |  | — |  |
| 2019 Senior Notes due December 2027 | 600.0 |  | 600.0 |  | 600.0 |  |
| 2021 Senior Notes due April 2026 | 600.0 |  | 600.0 |  | 600.0 |  |
| 2021 Senior Notes due April 2029 | 600.0 |  | 600.0 |  | 600.0 |  |
| Debt issuance costs and debt discount | (23.3) |  | (27.9) |  | (24.4) |  |
| Total debt | 2,326.7 | 55% | 2,572.2 | 61% | 2,325.6 | 53% |
| Stockholders' equity | 1,937.7 | 45 | 1,618.1 | 39 | 2,056.3 | 47 |
| Total capitalization (debt plus equity) | $4,264.4 | 100% | $4,190.2 | 100% | $4,381.9 | 100% |

Total debt, including short-term borrowings, remained consistent at $2.33 billion at March 31, 2023, as compared to $2.33 billion at December 31, 2022. Total debt, including short-term borrowings, was $2.33 billion at March 31, 2023, as compared to $2.57 billion at March 31, 2022. The decrease was due to the repayment of the $250.0 million aggregate principal amount of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022.

Stockholders' equity decreased $118.6 million to $1.94 billion at March 31, 2023, as compared to $2.06 billion at December 31, 2022, primarily due to net loss for the first three months of 2023. Stockholders' equity increased $319.6 million to $1.94 billion at March 31, 2023, as compared to $1.62 billion at March 31, 2022, primarily due to net income in the trailing twelve months and share repurchases of $34.0 million during the first quarter of 2023.

### Litigation

See Part I, Item 1 "Financial Statements—Note 20 to the Consolidated Financial Statements—Contingencies" of this Quarterly Report on Form 10-Q.

### Application of Critical Accounting Policies and Estimates

Mattel's critical accounting policies and estimates are included in the 2022 Annual Report on Form 10-K and did not materially change during the first three months of 2023.

### New Accounting Pronouncements

See Part I, Item 1 "Financial Statements—Note 22 to the Consolidated Financial Statements—New Accounting Pronouncements" of this Quarterly Report on Form 10-Q.

### Non-GAAP Financial Measure

To supplement the financial results presented in accordance with GAAP, Mattel presents a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC. The non-GAAP financial measure that Mattel presents is currency exchange rate impact. Mattel uses this measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. Mattel believes that the disclosure of this non-GAAP financial measure provides useful supplemental information to investors to be able to better evaluate ongoing business performance and certain components of Mattel's results. This measure is not, and should not be viewed as, a substitute for GAAP financial measures and may not be comparable to similarly-titled measures used by other companies.

#### Currency Exchange Rate Impact

The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates.

For entities reporting in currencies other than the U.S. dollar, Mattel calculates the percentage change of period-over-period results at constant currency exchange rates (established as described below) by translating current period and prior period results using these rates and then determines the currency exchange rate impact percentage by calculating the difference between the percentage change at such constant currency exchange rates and the percentage change at actual exchange rates.

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. 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.

### Key Performance Indicator

Gross billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products.

## Market risk

As filed, 4,009 characters.

#### Foreign Currency Exchange Rate Risk

Currency exchange rate fluctuations impact Mattel's results of operations and cash flows. Chinese yuan, Euro, and Russian ruble were the primary currencies that caused foreign currency transaction exposure for Mattel during the first three months of 2023. Mattel seeks to mitigate its exposure to market risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts primarily to hedge its purchase and sale of inventory and other intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of up to 24 months. For those intercompany receivables and payables that are not hedged, the transaction gains or losses are recorded in the consolidated statements of operations in the period in which the exchange rate changes as part of operating (loss) income or other non-operating (income) expense, net based on the nature of the underlying transaction. 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. In addition, Mattel manages its exposure to currency exchange rate fluctuations through the selection of currencies used for international borrowings. Mattel does not trade in financial instruments for speculative purposes.

Mattel's financial position is also impacted by currency exchange rate fluctuations on translation of its net investments in subsidiaries with non-U.S. dollar functional currencies. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars at fiscal period-end exchange rates. Income, expense, and cash flow items are translated at weighted-average exchange rates prevailing during the fiscal period. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity. Mattel's primary currency translation adjustments for the three months ended March 31, 2023 were related to its net investments in entities having functional currencies denominated in the Mexican peso, British pound sterling, Russian ruble, Chilean peso, and Brazilian real.

There are numerous factors impacting the amount by which Mattel's financial results are affected by foreign currency translation and transaction gains and losses resulting from changes in currency exchange rates, including, but not limited to, the level of foreign currency forward exchange contracts in place at a given time and the volume of foreign currency-denominated transactions in a given period. However, assuming that such factors were held constant, Mattel estimates that a one percent change in the U.S. dollar would have impacted Mattel's first quarter net sales by approximately 0.4% and would have less than a $0.01 impact to Mattel's net income per share.

#### Turkey Operations

Effective April 1, 2022, Mattel has accounted for Turkey as a highly inflationary economy, as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning April 1, 2022, Mattel's Turkey subsidiary has designated the U.S. dollar as its functional currency.

#### Argentina Operations

During the third quarter of 2021, Mattel began a process to liquidate its subsidiary in Argentina. The liquidation was substantially completed during the fourth quarter of 2022. Prior to the substantial completion of the liquidation, Mattel had recorded $45.4 million of currency translation adjustments in accumulated other comprehensive loss, net within its consolidated balance sheet. As a result of the substantially complete liquidation, the cumulative currency translation adjustments were removed from accumulated other comprehensive loss and recognized as a loss in other non-operating expense within the consolidated statement of operations in the fourth quarter of 2022.

## Controls and procedures

As filed, 1,416 characters.

#### Evaluation of Disclosure Controls and Procedures

As of March 31, 2023, Mattel's disclosure controls and procedures were evaluated, with the participation of Mattel's principal executive officer and principal financial officer, to assess whether they are effective in providing reasonable assurance that information required to be disclosed by Mattel in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, Ynon Kreiz, Mattel's principal executive officer, and Anthony DiSilvestro, Mattel's principal financial officer, concluded that these disclosure controls and procedures were effective to provide reasonable assurance as of March 31, 2023.

#### Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, Mattel's internal control over financial reporting.

## Risk factors

As filed, 142 characters.

There have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in the 2022 Annual Report on Form 10-K.

Filed May 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-014912. Last ingested by Listed: Oct 24, 2026, 14:53 ET. No prices; not investment advice.