Mattel Inc: Form 10-Q for the period ended Sep 30, 2025

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 not associated with categories, brands, or individual products.

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

Overview

Mattel is a leading global toy and family entertainment company and owner of one of the most iconic brand portfolios in the world. Mattel creates innovative products and experiences that inspire fans, entertain audiences, and develop children through play. Mattel is focused on the following strategy to grow its intellectual property ("IP") driven toy business and expand its entertainment offering:

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

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, Disney 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. Monster High, a character-driven franchise, engages fans of all ages, encouraging them to be their authentic selves and celebrate what makes them unique. 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 characters from past and present.

**Infant, Toddler, and Preschool—**including brands such as Fisher-Price (including Little People and Fisher-Price Wood), Imaginext, and Thomas & Friends. As a leader in play and child development, Fisher-Price is dedicated to giving families the best possible start to life by making the most fun, enriching products for infants, toddlers, and preschoolers. Thomas & Friends is an award-winning preschool train brand franchise that lays the tracks to inspire, entertain, and develop young train fans through toys, content, live events, and other consumer products.

Infant, Toddler, and Preschool is further divided into three subcategories. The first subcategory is Fisher-Price, the power brand, which includes the core Infant, Little People, and Newborn product lines, as well as the recently launched Fisher-Price Wood product line. The second subcategory is Preschool Entertainment, which includes owned IP such as Thomas & Friends and Barney, Mattel's character based Imaginext line, and partner entertainment brands. The third subcategory is Baby Gear and Power Wheels, in which Mattel is strategically out-licensing or exiting certain product lines.

**Vehicles—**including brands such as Hot Wheels (including Hot Wheels Monster Trucks and Hot Wheels RC), Matchbox, and Cars (Disney Pixar). In production for over 50 years, Hot Wheels continues to push the limits of performance and design, and ignites and nurtures 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 fans of all ages.

**Action Figures, Building Sets, Games, and Other—**including brands such as Masters of the Universe, MEGA, UNO, Jurassic World (NBCUniversal), Minecraft (Microsoft), WWE, and Star Wars (Disney's Lucasfilm). Mattel's Action Figures portfolio is comprised of product lines associated with licensed entertainment franchises, such as Jurassic World and WWE, as well as product lines from Mattel-owned IP, such as Masters of the Universe. As the challenger brand in Building Sets, MEGA inspires creativity through authentic building experiences for 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

During the third quarter of 2025, Mattel’s U.S. business continued to be challenged by industry-wide shifts in retailer ordering patterns, which impacted Mattel’s net sales. Notwithstanding the impact of the current trade dynamics, the fundamentals of Mattel’s business remained strong and Mattel continued to advance its strategy to grow its IP-driven toy business and expand its entertainment offering.

Mattel's net sales in the third quarter of 2025 decreased 6%, as compared to the third quarter of 2024. Gross margin was 50.0% in the third quarter of 2025, as compared to 53.1% in the third quarter of 2024, with unfavorable impacts from foreign currency exchange rates, inflation, tariff costs, and higher sales adjustments, partially offset by cost savings from the OPG program. Net income per diluted common share was $0.88 in the third quarter of 2025, as compared to $1.09 in the third quarter of 2024. Additionally, Mattel ended the third quarter of 2025 with cash and equivalents of $691.9 million, as compared to $723.5 million at the end of the third quarter of 2024, after $544.2 million of share repurchases during the twelve months ending September 30, 2025.

Global trade policy continues to evolve with significant U.S. tariffs imposed or proposed on imports from China, Vietnam, Mexico, and other countries. There is substantial uncertainty about the duration of existing tariffs, potential changes or pauses to such tariffs, tariff levels, and whether additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on Mattel's business. Mattel continues to monitor and evaluate these developments and assess their potential impact on Mattel’s business and operations.

Mattel is operating in an uncertain macro-economic environment with significant volatility that may impact consumer demand. To the extent the macro-economic environment worsens, it may have a material effect on Mattel's results of operations and financial condition. Refer to Part I, Item 1A "Risk Factors" in the 2024 Annual Report on Form 10-K and Part II, Item 1A "Risk Factors" in the Quarterly Report on Form 10-Q for the three months ended March 31, 2025 for further discussion regarding potential impacts on Mattel's business.

Results of Operations—Third Quarter

Consolidated Results

The following table presents Mattel's consolidated results for the third quarter of 2025 and 2024:

(In millions, except percentage and basis point information)

Sales

Net sales in the third quarter of 2025 were $1.74 billion, a decrease of $107.9 million, or 6%, as compared to $1.84 billion in the third quarter of 2024. The decrease in net sales was due to a decrease in gross billings of $84.3 million and an increase in sales adjustments of $23.6 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. Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products. The following tables provide a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for the third quarter of 2025 and 2024:

(In millions, except percentage information)

Gross billings were $1.97 billion in the third quarter of 2025, a decrease of $84.3 million, or 4%, as compared to $2.05 billion in the third quarter of 2024, with a favorable impact from changes in currency exchange rates of one percentage point. The decrease in gross billings was primarily due to lower billings of Infant, Toddler, and Preschool and Dolls products, partially offset by higher billings of Vehicles and Action Figures, Building Sets, Games, and Other products.

Dolls gross billings decreased 11%, primarily due to lower billings of Barbie products.

Infant, Toddler, and Preschool gross billings decreased 25%, of which 14% was due to lower billings of Fisher-Price products, 7% was due to lower billings of Preschool Entertainment products, and 3% was due to lower billings of Baby Gear and Power Wheels products, due to the continued strategic exit from certain product lines in Baby Gear and Power Wheels.

Vehicles gross billings increased 8%, primarily due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 11%, of which 18% was due to higher billings of Action Figures products, primarily due to higher billings of Jurassic World and Minecraft products in connection with their theatrical releases in 2025, partially offset by lower billings of Building Sets products of 5%.

Sales adjustments generally represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. 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 $230.8 million in the third quarter of 2025 from $207.2 million in the third quarter of 2024. Sales adjustments as a percentage of net sales increased to 13.3% in the third quarter of 2025, as compared to 11.2% in the third quarter of 2024, primarily due to increased promotional activities and a shift in sales channel mix resulting in a higher proportion of sales with higher average sales adjustment rates.

Cost of Sales

Cost of sales was relatively consistent at $867.7 million in the third quarter of 2025, as compared to $864.9 million in the third quarter of 2024. Within cost of sales, product and other costs decreased by $8.1 million, or 1%, to $688.0 million in the third quarter of 2025 from $696.1 million in the third quarter of 2024. Freight and logistics expenses increased by $6.3 million, or 7%, to $91.3 million in the third quarter of 2025, as compared to $84.9 million in the third quarter of 2024. Royalty expense increased by $4.5 million, or 5%, to $88.5 million in the third quarter of 2025 from $83.9 million in the third quarter of 2024.

Gross Margin

Gross margin decreased to 50.0% in the third quarter of 2025 from 53.1% in the third quarter of 2024. The decrease in gross margin was primarily due to unfavorable foreign currency exchange of 120 basis points, cost inflation of 110 basis points, tariff costs of 100 basis points, higher sales adjustments of 80 basis points, partially offset by incremental realized savings from the OPG program of 80 basis points, and other factors of 20 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) general advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales increased to 6.8% in the third quarter of 2025, as compared to 5.7% in the third quarter of 2024. The increase in advertising and promotion expenses as a percentage of net sales was primarily due to a shift in the timing of advertising and promotion programs to support consumer demand and lower sales in the third quarter of 2025, as compared to the third quarter of 2024.

Other Selling and Administrative Expenses

Other selling and administrative expenses were $370.3 million, or 21.3% of net sales, in the third quarter of 2025, a decrease of $15.4 million, as compared to $385.7 million, or 20.9% of net sales, in the third quarter of 2024. The decrease in other selling and administrative expenses was primarily due to lower severance and restructuring charges of $26.7 million, lower employee compensation related expenses of $19.8 million, and realized savings from the OPG program of $9.1 million, partially offset by higher expenses related to inclined sleeper product recalls of $16.3 million and higher outside services and other expenses of $23.9 million.

Interest Expense

Interest expense was $29.4 million in the third quarter of 2025, flat as compared to $29.4 million in the third quarter of 2024.

Interest Income

Interest income was $9.0 million in the third quarter of 2025, relatively flat as compared to $9.8 million in the third quarter of 2024.

Provision for Income Taxes

Mattel's provision for income taxes was $86.9 million in the third quarter of 2025, as compared to $106.4 million in the third quarter of 2024. The decrease in provision for income taxes was primarily due to lower income before income taxes, partially offset by a non-recurring discrete income tax benefit from previously unrecognized tax benefits recognized in the third quarter of 2024. During the third quarter of 2025, Mattel recognized a net discrete income tax benefit of $2.3 million. During the third quarter of 2024, Mattel recognized a net discrete income tax benefit of $3.4 million, primarily related to previously unrecognized tax benefits, partially offset by the establishment of a valuation allowance on certain foreign deferred tax assets.

Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. For the third quarter of 2025 and 2024, there were no material changes to Mattel's valuation allowance.

Segment Results

North America Segment

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 the third quarter of 2025 and 2024:

(In millions, except percentage information)

Net sales for the North America segment in the third quarter of 2025 were $978.1 million, a decrease of $130.2 million, or 12%, as compared to $1.11 billion in the third quarter of 2024. The decrease in net sales was primarily due to a decrease in gross billings of $124.4 million.

(In millions, except percentage information)

Gross billings for the North America segment were $1.06 billion in the third quarter of 2025, a decrease of $124.4 million, or 11%, as compared to $1.18 billion in the third quarter of 2024. The decrease in the North America segment gross billings was due to lower billings of Infant, Toddler, and Preschool, Dolls, and Vehicles products, partially offset by higher billings of Action Figures, Building Sets, Games, and Other products.

Dolls gross billings decreased 11%, primarily due to lower billings of Barbie products.

Infant, Toddler, and Preschool gross billings decreased 31%, of which 17% was due to lower billings of Fisher-Price products, 10% was due to lower billings of Preschool Entertainment products, and 5% was due to lower billings of Baby Gear and Power Wheels products, due to the continued strategic exit from certain product lines in Baby Gear and Power Wheels.

Vehicles gross billings decreased 4%, primarily due to lower billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 3%, of which 16% was due to higher billings of Action Figures products, primarily due to higher billings of Jurassic World and Minecraft products in connection with their theatrical releases in 2025, partially offset by lower billings of Building Sets products of 6% and lower billings of Games products of 5%.

Sales adjustments increased to $81.8 million in the third quarter of 2025 from $76.0 million in the third quarter of 2024. Sales adjustments as a percentage of net sales increased to 8.4% in the third quarter of 2025 from 6.9% in the third quarter of 2024, primarily due to increased promotional activities and a shift in sales channel mix resulting in a higher proportion of sales with higher average sales adjustment rates.

Cost of sales decreased by $47.3 million, or 9%, to $487.5 million in the third quarter of 2025 from $534.8 million in the third quarter of 2024, primarily due to a decrease in product and other costs of $48.2 million.

Gross margin decreased to 50.2% in the third quarter of 2025 from 51.7% in the third quarter of 2024. The decrease in gross margin was primarily due to tariff costs of 180 basis points, cost inflation of 110 basis points, and higher sales adjustments of 70 basis points, partially offset by incremental realized savings from the OPG program of 90 basis points, and other factors of 120 basis points.

North America segment operating income was $315.2 million in the third quarter of 2025, as compared to $412.4 million in the third quarter of 2024, primarily due to lower gross profit of $82.9 million and higher advertising and promotion expenses of $10.8 million.

International Segment

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 International segment for the third quarter of 2025 and 2024:

(In millions, except percentage information)

Net sales for the International segment in the third quarter of 2025 were $757.9 million, an increase of $22.3 million, or 3%, as compared to $735.6 million in the third quarter of 2024. The increase in net sales was primarily due to an increase in gross billings of $40.1 million, partially offset by an increase in sales adjustments of $17.8 million.

(In millions, except percentage information)

Gross billings for the International segment were $906.9 million in the third quarter of 2025, an increase of $40.1 million, or 5%, as compared to $866.8 million in the third quarter of 2024, with a favorable impact from changes in currency exchange rates of three percentage points. The increase in the International segment gross billings was due to higher billings of Vehicles and Action Figures, Building Sets, Games, and Other products, partially offset by lower billings of Dolls and Infant, Toddler, and Preschool products.

Dolls gross billings decreased 11%, primarily due to lower billings of Barbie products.

Infant, Toddler, and Preschool gross billings decreased 14%, of which 9% was due to lower billings of Fisher-Price products and 3% was due to lower billings of Preschool Entertainment products.

Vehicles gross billings increased 20%, primarily due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 24%, of which 22% was due to higher billings of Action Figures products, primarily due to higher billings of Jurassic World and Minecraft products in connection with their theatrical releases in 2025, and 6% was due to higher billings of Games products, partially offset by lower billings of Building Sets products of 2%.

Sales adjustments increased to $149.0 million in the third quarter of 2025 from $131.2 million in the third quarter of 2024. Sales adjustments as a percentage of net sales increased to 19.7% in the third quarter of 2025, as compared to 17.8% in the third quarter of 2024. The increase in sales adjustments as a percentage of net sales was primarily due to increased promotional activities and a shift in sales channel mix resulting in a higher proportion of sales with higher average sales adjustment rates.

Cost of sales increased by $20.2 million, or 6%, to $375.8 million in the third quarter of 2025 from $355.6 million in the third quarter of 2024, primarily due to an increase in product and other costs of $10.2 million and an increase in royalty expense of $5.9 million.

Gross margin decreased to 50.4% in the third quarter of 2025 from 51.7% in the third quarter of 2024. The decrease in gross margin was primarily due to cost inflation of 90 basis points, higher sales adjustments of 60 basis points, and other factors of 40 basis points, partially offset by incremental realized savings from the OPG program of 60 basis points.

International segment operating income was $208.6 million in the third quarter of 2025, as compared to $217.7 million in the third quarter of 2024, primarily due to higher other selling and administrative expenses of $8.7 million.

Results of Operations—First Nine Months

Consolidated Results

The following table presents Mattel's consolidated results for the first nine months of 2025 and 2024:

(In millions, except percentage and basis point information)

Sales

Net sales in the first nine months of 2025 were $3.58 billion, a decrease of $152.0 million, or 4%, as compared to $3.73 billion in the first nine months of 2024. The decrease in net sales was due to a decrease in gross billings of $110.0 million and an increase in sales adjustments of $42.0 million.

Gross billings represent amounts invoiced to a customer and do not include the impact of sales adjustments, such as trade discounts and other allowances. Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products. The following tables provide a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for the first nine months of 2025 and 2024:

(In millions, except percentage information)

Gross billings were $4.04 billion in the first nine months of 2025, a decrease of $110.0 million, or 3%, as compared to $4.15 billion in the first nine months of 2024. The decrease in gross billings was primarily due to lower billings of Dolls and Infant, Toddler, and Preschool products, partially offset by higher billings of Action Figures, Building Sets, Games, and Other and Vehicles products.

Dolls gross billings decreased 11%, primarily due to lower billings of Barbie products.

Infant, Toddler, and Preschool gross billings decreased 21%, of which 12% was due to lower billings of Fisher-Price products, 5% was due to lower billings of Baby Gear and Power Wheels products, due to the continued strategic exit from certain product lines in Baby Gear and Power Wheels, and 4% was due to lower billings of Preschool Entertainment products.

Vehicles gross billings increased 8%, primarily due to higher billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 13%, of which 21% was due to higher billings of Action Figures products, primarily due to higher billings of Jurassic World and Minecraft products in connection with their theatrical releases in 2025, partially offset by lower billings of Building Sets products of 6%.

Sales adjustments generally represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. 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 $460.3 million in the first nine months of 2025 from $418.3 million in the first nine months of 2024. Sales adjustments as a percentage of net sales increased to 12.9% in the first nine months of 2025, as compared to 11.2% in the first nine months of 2024. The increase in sales adjustments as a percentage of net sales was primarily due to increased promotional activities and a shift in sales channel mix resulting in a higher proportion of sales with higher average sales adjustment rates.

Cost of Sales

Cost of sales decreased by $48.7 million, or 3%, to $1.79 billion in the first nine months of 2025 from $1.83 billion in the first nine months of 2024. Within cost of sales, product and other costs decreased by $66.0 million, or 5%, to $1.38 billion in the first nine months of 2025 from $1.44 billion in the first nine months of 2024. Royalty expense increased by $14.4 million, or 9%, to $182.2 million in the first nine months of 2025, as compared to $167.7 million in the first nine months of 2024. Freight and logistics expenses increased by $2.9 million, or 1%, to $228.5 million in the first nine months of 2025 from $225.5 million in the first nine months of 2024.

Gross Margin

Gross margin decreased to 50.1% in the first nine months of 2025 from 50.9% in the first nine months of 2024. The decrease in gross margin was primarily due to cost inflation of 100 basis points, higher sales adjustments of 70 basis points, tariff costs of 50 basis points, and other factors of 20 basis points, partially offset by incremental realized savings from the OPG program of 100 basis points, and lower inventory management costs of 60 basis points, due to lower close-out sales and inventory obsolescence.

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) general advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales increased to 7.5% in the first nine months of 2025 from 6.7% in the first nine months of 2024, primarily due to a shift in the timing of advertising and promotion programs to support consumer demand, and lower sales in the first nine months of 2025 as compared to the first nine months of 2024.

Other Selling and Administrative Expenses

Other selling and administrative expenses were $1.12 billion, or 31.3% of net sales, in the first nine months of 2025, an increase of $10.0 million, as compared to $1.11 billion, or 29.8% of net sales, in the first nine months of 2024. The increase in other selling and administrative expenses was primarily due to higher expenses related to inclined sleeper product recalls of $30.0 million and higher outside services and other expenses of $39.3 million, partially offset by realized savings from the OPG program of $29.4 million, lower severance and restructuring charges of $19.9 million, and lower employee compensation related expenses of $10.0 million.

Interest Expense

Interest expense was $88.0 million in the first nine months of 2025, relatively flat as compared to $89.4 million in the first nine months of 2024.

Interest Income

Interest income was $37.3 million in the first nine months of 2025, relatively flat as compared to $39.5 million in the first nine months of 2024.

Provision for Income Taxes

Mattel's provision for income taxes was $72.5 million for the first nine months of 2025, as compared to $94.8 million for the first nine months of 2024. The decrease in provision for income taxes was primarily due to lower income before income taxes, partially offset by lower discrete income tax benefits. During the first nine months of 2025, Mattel recognized a net discrete income tax benefit of $12.6 million, primarily related to a change of its indefinite reinvestment assertion relating to certain foreign subsidiary earnings. During the first nine months of 2024, Mattel recognized a net discrete income tax benefit of $16.3 million, primarily related to tax elections filed to amortize certain intangible assets transferred as part of Mattel's intra-group IP rights transfer and previously unrecognized tax benefits.

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. For the first nine months of 2025 and 2024, there were no material changes to Mattel's valuation allowance.

Segment Results

North America Segment

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 the first nine months of 2025 and 2024:

(In millions, except percentage information)

Net sales for the North America segment in the first nine months of 2025 were $1.98 billion, a decrease of $212.3 million, or 10%, as compared to $2.19 billion in the first nine months of 2024. The decrease in net sales was primarily due to a decrease in gross billings of $204.2 million.

(In millions, except percentage information)

Gross billings for the North America segment were $2.13 billion in the first nine months of 2025, a decrease of $204.2 million, or 9%, as compared to $2.34 billion in the first nine months of 2024. The decrease in gross billings was primarily due to lower billings of Infant, Toddler, and Preschool, Dolls, and Vehicles products, partially offset by higher billings of Action Figures, Building Sets, Games, and Other products.

Dolls gross billings decreased 12%, primarily due to lower billings of Barbie products.

Infant, Toddler, and Preschool gross billings decreased 27%, of which 14% was due to lower billings of Fisher-Price products, 7% was due to lower billings of Baby Gear and Power Wheels products, due to the continued strategic exit from certain product lines in Baby Gear and Power Wheels, and 5% was due to lower billings of Preschool Entertainment products.

Vehicles gross billings decreased 1%, primarily due to lower billings of Hot Wheels products.

Action Figures, Building Sets, Games, and Other gross billings increased 4%, of which 17% was due to higher billings of Action Figures products, primarily due to higher billings of Jurassic World and Minecraft products in connection with their theatrical releases in 2025, partially offset by lower billings of Building Sets products of 8% and lower billings of Games products of 4%.

Sales adjustments increased to $153.1 million in the first nine months of 2025 from $145.0 million in the first nine months of 2024. Sales adjustments as a percentage of net sales increased to 7.7% for the first nine months of 2025, as compared to 6.6% for the first nine months of 2024, primarily due to increased promotional activities and a shift in sales channel mix resulting in a higher proportion of sales with higher average sales adjustment rates.

Cost of sales decreased by $102.2 million, or 9%, to $1.01 billion in the first nine months of 2025 from $1.11 billion in the first nine months of 2024, primarily due to a decrease in product and other costs of $101.0 million.

Gross margin in the first nine months of 2025 decreased to 49.0% from 49.3% in the first nine months of 2024, primarily due to cost inflation of 100 basis points, tariff costs of 100 basis points, and higher sales adjustments of 50 basis points, partially offset by incremental realized savings from the OPG program of 100 basis points, lower inventory management costs of 50 basis points, due to lower close-out sales and inventory obsolescence, and other factors of 70 basis points.

North America segment operating income decreased by $130.3 million to $492.1 million in the first nine months of 2025, as compared to $622.3 million in the first nine months of 2024, primarily due to lower gross profit of $110.1 million and higher advertising and promotion expenses of $17.6 million.

International Segment

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 International segment for the first nine months of 2025 and 2024:

(In millions, except percentage information)

Net sales for the International segment in the first nine months of 2025 were $1.60 billion, an increase of $60.3 million, or 4%, as compared to $1.54 billion in the first nine months of 2024. The increase in net sales was due to an increase in gross billings of $94.2 million, partially offset by an increase in sales adjustments of $33.9 million.

(In millions, except percentage information)

Gross billings for the International segment were $1.91 billion in the first nine months of 2025, an increase of $94.2 million, or 5%, as compared to $1.81 billion in the first nine months of 2024. The increase in gross billings was due to higher billings of Vehicles and Action Figures, Building Sets, Games, and Other products, partially offset by lower billings of Dolls and Infant, Toddler, and Preschool products.

Dolls gross billings decreased 9%, primarily due to lower billings of Barbie products.

Infant, Toddler, and Preschool gross billings decreased 12%, of which 8% was due to lower billings of Fisher-Price products, 2% was due to lower billings of Baby Gear and Power Wheels products, due to the continued strategic exit from certain product lines in Baby Gear and Power Wheels, and 2% was due to lower billings of Preschool Entertainment products.

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

Action Figures, Building Sets, Games, and Other gross billings increased 28%, of which 27% was due to higher billings of Action Figures products, primarily due to higher billings of Jurassic World and Minecraft products in connection with their theatrical releases in 2025, and 6% was due to higher billings of Games products, partially offset by lower billings of Building Sets products of 4%.

Sales adjustments increased to $307.1 million in the first nine months of 2025 from $273.2 million in the first nine months of 2024. Sales adjustments as a percentage of net sales increased to 19.2% for the first nine months of 2025, as compared to 17.7% for the first nine months of 2024. The increase in sales adjustments as a percentage of net sales was primarily due to increased promotional activities.

Cost of sales increased by $8.8 million, or 1%, to $796.4 million in the first nine months of 2025 from $787.5 million in the first nine months of 2024, primarily due to an increase in royalty expense of $12.9 million.

Gross margin increased to 50.3% in the first nine months of 2025 from 48.9% in the first nine months of 2024, primarily due to incremental realized savings from the OPG program of 90 basis points, lower inventory management costs of 70 basis points, due to lower close-out sales and inventory obsolescence, and other factors of 140 basis points, partially offset by cost inflation of 110 basis points and higher sales adjustments of 50 basis points.

International segment operating income increased by $42.6 million to $346.9 million in the first nine months of 2025, as compared to $304.3 million in the first nine months of 2024, primarily due to higher gross profit of $51.5 million.

Cost Savings Program

Optimizing for Profitable Growth

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 60% is expected to benefit cost of sales and 40% is expected to benefit other selling and administrative expenses. Total cash expenditures under the OPG program are expected to be between $115 and $140 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:

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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:

(In millions)

(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 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 September 30, 2025, Mattel has recorded cumulative severance and other restructuring charges related to the OPG program of approximately $100 million, which includes approximately $5 million of non-cash charges. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $148 million, which represents approximately 60% benefit to cost of sales, and 40% benefit to other selling and administrative expenses, as of September 30, 2025, in connection with the OPG program.

Liquidity and Capital Resources

Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, driven by cash flows from operating activities, short-term borrowing facilities, including its $1.40 billion 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 $691.9 million in cash and equivalents at September 30, 2025, $479.1 million was held by foreign subsidiaries, including $70.0 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. 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, such as tariffs, 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 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, operating expenditure, and other contractual 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.

Mattel intends to utilize its existing cash and equivalents, cash flow from operations, and borrowings under the Credit Facility to meet its short-term liquidity needs. At September 30, 2025, Mattel had no outstanding borrowings under the Credit Facility and approximately $9 million in outstanding letters of credit under the Credit Facility.

Mattel has $600.0 million of 2021 Senior Notes due 2026 that are scheduled to mature in April 2026, which Mattel intends to repay or refinance prior to the scheduled maturity date.

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

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

Cash Flow Activities

Cash flows used for operating activities were $203.3 million in the first nine months of 2025, as compared to $61.6 million in the first nine months of 2024. The increase in cash flows used for operating activities was primarily due to a decrease in net income, excluding the impact of non-cash items, partially offset by a decrease in cash used for working capital of $20.5 million.

Cash flows used for investing activities were $97.5 million in the first nine months of 2025, as compared to $151.7 million in the first nine months of 2024. The decrease in cash flows used for investing activities was primarily due to a decrease in purchases of other property, plant, and equipment of $33.7 million, which included the purchase of an office building for $58.8 million in July 2024.

Cash flows used for financing activities were $426.3 million in the first nine months of 2025, as compared to $314.2 million in the first nine months of 2024. The increase in cash flows used for financing activities was primarily due to $144.2 million of increased share repurchases in the first nine months of 2025 as compared to the first nine months of 2024.

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 $696.0 million to $691.9 million at September 30, 2025 from $1.39 billion at December 31, 2024, primarily due to share repurchases of $412.5 million, cash flows used for operating activities of $203.3 million, and capital expenditures of $124.9 million, partially offset by favorable effects of currency exchange rate changes on cash of $31.1 million. Mattel's cash and equivalents decreased $31.6 million to $691.9 million at September 30, 2025 from $723.5 million at September 30, 2024, primarily due to cash paid for share repurchases of $544.2 million and capital expenditures of $170.5 million during the twelve months ended September 30, 2025, partially offset by cash flows generated from operating activities of $658.9 million during that twelve month period.

Accounts receivable increased $387.1 million to $1.39 billion at September 30, 2025 from $1.00 billion at December 31, 2024, primarily due to the seasonality of Mattel's business. Accounts receivable decreased by $87.1 million to $1.39 billion at September 30, 2025 from $1.48 billion at September 30, 2024, primarily due to lower net sales and timing of collections.

Inventories increased $324.9 million to $826.6 million at September 30, 2025 from $501.7 million at December 31, 2024, primarily due to seasonal inventory build. Inventories increased $89.4 million to $826.6 million at September 30, 2025 from $737.2 million at September 30, 2024, primarily due to tariff related impacts and lower sales in the third quarter of 2025 as compared to the third quarter of 2024 and the impact of foreign currency translation.

Prepaid expenses and other current assets increased $12.8 million to $246.9 million at September 30, 2025 from $234.1 million at December 31, 2024, primarily due to increases in prepaid royalties of $28.2 million, partially offset by a decrease in derivative receivables of $16.4 million. Prepaid expenses and other current assets were $246.9 million at September 30, 2025, relatively flat as compared to $242.3 million at September 30, 2024.

Accounts payable and accrued liabilities increased $44.9 million to $1.32 billion at September 30, 2025 from $1.28 billion at December 31, 2024, primarily due to an increase in accounts payable of $93.9 million, an increase in interest payable of $27.0 million, an increase in other accrued liabilities of $22.7 million, and an increase in derivative liabilities of $19.7 million, partially offset by lower accrued incentive compensation of $95.7 million, including the timing of incentive compensation payments and lower accrued advertising of $46.1 million. Accounts payable and accrued liabilities increased $80.2 million to $1.32 billion at September 30, 2025 from $1.24 billion at September 30, 2024, primarily due to an increase in accounts payable of $53.6 million, other accrued liabilities of $33.9 million, and derivative liabilities of $12.8 million, partially offset by lower accrued incentive compensation of $42.2 million.

A summary of Mattel's capitalization is as follows:

(In millions, except percentage information)

Total debt was $2.34 billion at September 30, 2025, and $2.33 billion at both December 31, 2024 and September 30, 2024. Mattel has $600.0 million of 2021 Senior Notes due 2026 that mature in April 2026, which Mattel intends to repay or refinance prior to the scheduled maturity date.

Stockholders' equity was flat at $2.26 billion at September 30, 2025 and December 31, 2024, with share repurchases of $416.3 million during the nine months ended September 30, 2025 being substantially offset by net income of $291.4 million, currency translation adjustments of $105.7 million, and share-based compensation of $61.0 million during that period. Stockholders' equity decreased $51.7 million to $2.26 billion at September 30, 2025 from $2.31 billion at September 30, 2024, primarily due to share repurchases of $549.2 million during the twelve months ended September 30, 2025, partially offset by net income of $432.3 million and the impact of share-based compensation on additional paid-in capital of $82.9 million during that twelve month period.

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 2024 Annual Report on Form 10-K and did not materially change during the first nine months of 2025.

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 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 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

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 not associated with categories, brands, or individual products.

Foreign Currency Exchange Rate Risk

Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. The Hong Kong dollar, Euro, and Chinese yuan were the primary currencies that caused foreign currency transaction exposure for Mattel during the first nine months of 2025. Mattel seeks to mitigate its foreign currency exchange 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 income or other non-operating expense (income), 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 nine months ended September 30, 2025 were related to its net investments in entities having functional currencies denominated in the Russian ruble, Mexican peso, and the British pound sterling.

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 third quarter 2025 net sales by approximately 0.3% and would have less than a $0.01 impact to Mattel's net income per share.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2025, 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 Paul Ruh, Mattel's principal financial officer, concluded that these disclosure controls and procedures are not effective as of September 30, 2025 due to a material weakness in Mattel's internal control over financial reporting, which is more fully described in Management's Report on Internal Control Over Financial Reporting, in Part II, Item 8 "Financial Statements and Supplementary Data" in the 2024 Annual Report on Form 10-K.

Remediation Plan

Management is in the process of executing its remediation plan to address the material weakness. During the quarter ended September 30, 2025, management tested the operating effectiveness of user access provisioning controls for certain systems. Additional time is required to further test the operating effectiveness of these controls to demonstrate the effectiveness of the remediation efforts. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, Mattel's internal control over financial reporting.

Other than as provided in Mattel's Quarterly Report on Form 10-Q for the three months ended March 31, 2025, there have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in the 2024 Annual Report on Form 10-K.