Mattel Inc: Form 10-Q for the period ended Mar 31, 2026

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 play and family entertainment company and owner of one of the most iconic brand portfolios in the world. Mattel's mission is to create innovative products and experiences that inspire fans, entertain audiences, and develop children through play, and its purpose is to empower generations to explore the wonder of childhood and reach their full potential.

Mattel is focused on the following brand-centric strategy to grow its intellectual property ("IP") driven play and family entertainment business:

• Grow its toy brands with more breakthrough innovation and adult fans and collectors, as well as evolved demand creation;
• Expand its direct-to-consumer and commercial reach through first party data, retail development, and new channels;
• Broaden content offering in film, television, and short-form content, accelerate licensing in consumer products, location-based entertainment, and publishing, and expand with new business models;
• Scale digital play through mobile games self-publishing, Mattel163 mobile games studio, licensing, and creator platforms; and
• Optimize operations and leverage artificial intelligence across its systems and supply chain.

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, Polly Pocket, and KPop Demon Hunters. 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 in every girl, sparking imaginations and shaping futures through play. 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, 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.

**Vehicles—**including brands such as Hot Wheels (including Hot Wheels Monster Trucks and Hot Wheels RC), Matchbox, and Cars (Disney Pixar). Hot Wheels has continued to push the limits of performance and design since 1968, and ignites and nurtures the challenger spirit in 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.

**Infant, Toddler, and Preschool—**including brands such as Fisher-Price (including Little People) and Thomas & Friends, is organized into three subcategories: Fisher-Price, Preschool Entertainment, and Baby Gear and Power Wheels. The first subcategory is Fisher-Price, the power brand, which includes core Infant and Toddler product lines. 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. The second subcategory is Preschool Entertainment, which includes owned IP such as Thomas & Friends and partner entertainment brands. 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. The third subcategory is Baby Gear and Power Wheels, in which Mattel has strategically out-licensed or exited certain product lines.

**Action Figures, Building Sets, Games, and Other—**including brands such as Masters of the Universe, Mattel Brick Shop, MEGA, UNO, Jurassic World (NBCUniversal), Minecraft (Microsoft), WWE, Toy Story (Disney Pixar), 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. Introduced in 2025 as a new challenger brand in Building Sets, Mattel Brick Shop is designed to introduce differentiated building experiences through innovative features, materials, and techniques intended to expand traditional building play. Within Games, UNO is the classic matching card game that is easy to learn and fast fun for everyone, while the rest of the portfolio includes beloved heritage games such as Pictionary, Skip-Bo, Phase 10, and Blokus. Other includes Plush, which contains products associated with movie releases from licensed entertainment franchises such as Minecraft, as well as Mattel-owned IP.

Recent Developments

Mattel's net sales in the first quarter of 2026 increased 4% compared to the first quarter of 2025. Gross margin declined to 44.9% in the first quarter of 2026 compared to 49.4% in the first quarter of 2025, due to the gross incremental cost of tariffs, unfavorable foreign exchange, and inflation. Gross margin benefited from mitigating actions to offset tariffs and realized savings from the Optimizing for Profitable Growth program (the "OPG program"), partially offset by other factors.

Mattel continued to progress its strategy to grow its IP driven play and family entertainment business as Mattel completed its acquisition of full ownership of Mattel163 Limited mobile games studio ("Mattel163"), on March 2, 2026 (the "Acquisition Date"). The Mattel163 acquisition is expected to advance Mattel’s digital games business and add development, publishing, and digital customer acquisition expertise. The purchase price for the remaining 50% equity interest was $178.6 million, including working capital and other adjustments, and is subject to customary post-closing adjustments. Since Mattel held a 50% equity interest in Mattel163 immediately prior to the Acquisition Date and accounted for that investment under the equity method, Mattel remeasured its prior equity interest to the estimated fair value of $178.6 million as of the Acquisition Date and recognized a gain of $147.9 million in other non-operating income, net in the consolidated statement of operations during the three months ended March 31, 2026. Mattel now owns 100% of Mattel163 and began consolidating its financial results in Mattel's consolidated financial statements following the Acquisition Date.

Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S. tariffs is unclear. On February 20, 2026, the U.S. Supreme Court issued a ruling that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") on goods imported into the United States were unauthorized. Following that ruling, the U.S. Court of International Trade issued an order directing the U.S. Customs and Border Protection ("CBP") to process refunds of the IEEPA tariffs, although the Court immediately suspended the order while CBP develops and implements the refund process. The IEEPA tariffs and related refund framework remain subject to ongoing litigation, including potential appeals, as well as regulatory and administrative developments. Accordingly, the ultimate availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain. Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of various existing and newly announced or intended tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, suspended, or invalidated, 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, financial condition, and results of operations.

Mattel is operating in an uncertain geopolitical and macro-economic environment with significant volatility that may impact consumer demand. To the extent the geopolitical or macro-economic environment worsens, including due to further developments in the Middle East or regulatory actions impacting global trade, 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 2025 Annual Report on Form 10-K for further discussion regarding potential impacts on Mattel's business.

Results of Operations—First Quarter

Consolidated Results

The following table presents Mattel's consolidated results for the first quarter of 2026 and 2025:

(In millions, except percentage and basis point information)

N/M - not meaningful

Sales

Net sales in the first quarter of 2026 were $862.2 million, an increase of $35.5 million, or 4%, as compared to $826.6 million in the first quarter of 2025. The increase in net sales was due to an increase in gross billings of $47.7 million, partially offset by an increase in sales adjustments of $12.2 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 quarter of 2026 and 2025:

(In millions, except percentage information)

Gross billings were $971.9 million in the first quarter of 2026, an increase of $47.7 million, or 5%, as compared to $924.2 million in the first quarter of 2025, with a favorable impact from changes in currency exchange rates of three percentage points. The increase in gross billings was primarily 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 8%, primarily due to lower billings of Barbie products.

Vehicles gross billings increased 17%, primarily due to higher billings of Hot Wheels products.

Infant, Toddler, and Preschool gross billings decreased 16%, of which 8% was due to lower billings of Fisher-Price products, 5% was due to lower billings of Preschool Entertainment products, and 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.

Action Figures, Building Sets, Games, and Other gross billings increased 21%, of which 14% was due to higher billings of Games, which benefitted from the partial quarter contribution from Mattel163, 4% was due to higher billings of Action Figures products, and 3% was due to higher billings of Other products.

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 $109.7 million in the first quarter of 2026 from $97.5 million in the first quarter of 2025. Sales adjustments as a percentage of net sales increased to 12.7% in the first quarter of 2026, as compared to 11.8% in the first quarter of 2025, primarily due to a higher proportion of sales occurring in regions with higher average sales rates 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 increased by $56.9 million, or 14%, to $475.4 million in the first quarter of 2026 from $418.5 million in the first quarter of 2025. Within cost of sales, product and other costs increased by $42.7 million, or 14%, to $353.0 million in the first quarter of 2026 from $310.3 million in the first quarter of 2025. Royalty expense increased by $7.8 million, or 18%, to $50.4 million in the first quarter of 2026 from $42.5 million in the first quarter of 2025. Freight and logistics expenses increased by $6.4 million, or 10%, to $72.1 million in the first quarter of 2026, as compared to $65.7 million in the first quarter of 2025.

Gross Margin

Gross margin decreased to 44.9% in the first quarter of 2026 from 49.4% in the first quarter of 2025. The decrease in gross margin was primarily due to gross incremental tariff costs of 240 basis points, unfavorable impact from foreign currency exchange of 140 basis points, and cost inflation of 90 basis points. Gross margin benefited by 20 basis points from mitigating actions to offset tariffs and realized savings from the OPG program, partially offset by other factors.

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 10.8% in the first quarter of 2026, as compared to 8.5% in the first quarter of 2025. The increase in advertising and promotion expenses as a percentage of net sales was primarily due to increased advertising and promotion programs and the timing of holiday activations in the first quarter of 2026 compared to the first quarter of 2025.

Other Selling and Administrative Expenses

Other selling and administrative expenses were $396.6 million, or 46.0% of net sales, in the first quarter of 2026, an increase of $5.7 million, as compared to $390.9 million, or 47.3% of net sales, in the first quarter of 2025. The increase in other selling and administrative expenses was primarily due to expenses incurred in connection with the acquisition of Mattel163 of approximately $9 million, and higher investments and other expenses of $27.7 million, partially offset by lower expenses related to inclined sleeper product recalls and related litigation of $18.3 million, realized savings from the OPG program of $13.2 million, and lower severance and restructuring charges of $4.9 million.

Interest Expense

Interest expense was $31.1 million in the first quarter of 2026, relatively flat as compared to $29.2 million in the first quarter of 2025.

Interest Income

Interest income decreased by $5.3 million to $10.7 million in the first quarter of 2026 from $16.0 million in the first quarter of 2025. The decrease was primarily due to lower average invested cash balances in the first quarter of 2026.

Other Non-Operating (Income)/Expense, Net

Other non-operating income increased by $161.1 million to $148.1 million in the first quarter of 2026 from an expense of $13.0 million in the first quarter of 2025, primarily driven by the gain recognized on Mattel's previously held equity interest in Mattel163. On March 2, 2026, Mattel acquired the remaining 50% equity interest in Mattel163. Prior to the acquisition of the remaining 50% equity interest in Mattel163, Mattel accounted for its investment under the equity method. Upon obtaining control, Mattel remeasured its previously held 50% equity interest to its estimated fair value as of the Acquisition Date, resulting in a gain of $147.9 million recognized in the first quarter of 2026.

Benefit from Income Taxes

Mattel's benefit from income taxes was $32.5 million for the three months ended March 31, 2026, compared to $30.6 million for the three months ended March 31, 2025. The increase in benefit from income taxes was driven by a higher net loss from continuing operations before income taxes excluding the impact of the gain recognized on the acquisition of Mattel163, partially offset by lower net discrete income tax benefits in the first quarter of 2026. Mattel recognized a net discrete income tax benefit of $4.6 million during the three months ended March 31, 2026, primarily related to previously unrecognized tax benefits, partially offset by a discrete tax expense related to the acquisition of Mattel163. Mattel recognized a net discrete tax benefit of $11.4 million during the three months ended March 31, 2025, primarily related to a change of its indefinite reinvestment assertion relating to certain foreign subsidiary earnings.

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 three months ended March 31, 2026, 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 income, and gross billings by categories, along with supplemental information by brand, for the North America segment for the first quarter of 2026 and 2025:

(In millions, except percentage information)

Net sales for the North America segment in the first quarter of 2026 were $475.1 million, a decrease of $16.2 million, or 3%, as compared to $491.4 million in the first quarter of 2025. The decrease in net sales was primarily due to a decrease in gross billings of $17.5 million.

(In millions, except percentage information)

Gross billings for the North America segment were $508.5 million in the first quarter of 2026, a decrease of $17.5 million, or 3%, as compared to $526.0 million in the first quarter of 2025. The decrease in the North America segment gross billings was due to lower billings of Infant, Toddler, and Preschool and Dolls 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.

Vehicles gross billings increased 7%, primarily due to higher billings of Hot Wheels 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.

Action Figures, Building Sets, Games, and Other gross billings increased 9%, of which 11% was due to higher billings of Games, which benefitted from the partial quarter contribution from Mattel163, and 5% was due to higher billings of Other products, partially offset by lower billings of Building Sets products of 4% and lower billings of Action Figures products of 3%.

Sales adjustments were relatively flat at $33.3 million in the first quarter of 2026 compared to $34.6 million in the first quarter of 2025. Sales adjustments as a percentage of net sales was consistent at 7.0% in the first quarter of 2026 and 2025.

Cost of sales increased by $10.3 million, or 4%, to $266.6 million in the first quarter of 2026 from $256.3 million in the first quarter of 2025, primarily due to an increase in product and other costs of $5.8 million.

North America segment income was $34.5 million in the first quarter of 2026, as compared to $83.1 million in the first quarter of 2025, due to lower net sales of $16.2 million, higher other selling and administrative expenses of $12.2 million, higher cost of sales of $10.3 million, and higher advertising and promotion expenses of $9.9 million.

International Segment

The following tables provide a summary of Mattel's net sales, segment income, and gross billings by categories, along with supplemental information by brand, for the International segment for the first quarter of 2026 and 2025:

(In millions, except percentage information)

Net sales for the International segment in the first quarter of 2026 were $387.0 million, an increase of $51.8 million, or 15%, as compared to $335.3 million in the first quarter of 2025. The increase in net sales was primarily due to an increase in gross billings of $65.2 million, partially offset by an increase in sales adjustments of $13.5 million.

(In millions, except percentage information)

Gross billings for the International segment were $463.4 million in the first quarter of 2026, an increase of $65.2 million, or 16%, as compared to $398.2 million in the first quarter of 2025, with a favorable impact from changes in currency exchange rates of eight 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 products.

Dolls gross billings decreased 4%, primarily due to lower billings of Barbie products.

Vehicles gross billings increased 27%, primarily due to higher billings of Hot Wheels products.

Infant, Toddler, and Preschool gross billings were relatively flat year-over-year.

Action Figures, Building Sets, Games, and Other gross billings increased 42%, of which 19% was due to higher billings of Games products, which benefitted from the partial quarter contribution from Mattel163, 16% was due to higher billings of Action Figures products, and 7% was due to higher billings of Building Sets products.

Sales adjustments increased to $76.4 million in the first quarter of 2026 from $62.9 million in the first quarter of 2025. Sales adjustments as a percentage of net sales increased to 19.7% in the first quarter of 2026, as compared to 18.8% in the first quarter of 2025. The increase in sales adjustments as a percentage of net sales was primarily due to a higher proportion of sales occurring in regions with higher average sales rates and increased promotional activities.

Cost of sales increased by $27.2 million, or 16%, to $202.7 million in the first quarter of 2026 from $175.5 million in the first quarter of 2025, primarily due to an increase in product and other costs of $17.5 million.

International segment income decreased to $19.9 million in the first quarter of 2026 from $23.3 million in the first quarter of 2025, primarily due to higher cost of sales of $27.2 million, higher other selling and administrative expenses of $15.2 million, and higher advertising and promotion expenses of $12.8 million, partially offset by higher net sales of $51.8 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 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 the end of 2026, were increased from $200 million to $225 million in the fourth quarter of 2025. Of the $225 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 up to approximately $140 million and total non-cash charges are expected to be approximately $5 million.

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

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 income in "Note 22 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 unallocated corporate and other operating expenses in "Note 22 to the Consolidated Financial Statements—Segment Information."

As of March 31, 2026, in connection with the OPG program, Mattel recorded cumulative severance and other restructuring charges of approximately $132 million, which included approximately $5 million of non-cash charges. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $189 million, which represents approximately 55% benefit to cost of sales, and approximately 45% benefit to other selling and administrative expenses, as of March 31, 2026, 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 in aggregate principal amount of senior unsecured revolving credit facilities (the "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 $866.0 million in cash and equivalents at March 31, 2026, $652.8 million was held by foreign subsidiaries, including $72.3 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, 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 cash equivalents, cash flow from operations, and borrowings under the Credit Facility to meet its short-term liquidity needs. At March 31, 2026, Mattel had no outstanding borrowings under the Credit Facility and approximately $9 million in outstanding letters of credit under the Credit Facility.

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

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 $22.9 million in the first three months of 2026, as compared to cash flows provided by operating activities of $24.8 million in the first three months of 2025. 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 $11.3 million.

Cash flows used for investing activities were $143.6 million in the first three months of 2026, as compared to $31.3 million in the first three months of 2025. The increase in cash flows used for investing activities was primarily due to $74.8 million cash paid for the remaining 50% interest in Mattel163, net of cash acquired, and an increase in capital expenditures of $28.9 million.

Cash flows used for financing activities were $208.3 million in the first three months of 2026, as compared to $161.9 million in the first three months of 2025. The increase in cash flows used for financing activities was primarily due to $40.0 million of increased share repurchases in the first three months of 2026 as compared to the first three months of 2025.

Seasonal Financing

See Part I, Item 1 "Financial Statements—Note 9 to the Consolidated Financial Statements—Seasonal Financing" of this Quarterly Report on Form 10-Q.

Financial Position

Mattel's cash and equivalents decreased by $376.9 million to $866.0 million at March 31, 2026 from $1.24 billion at December 31, 2025, primarily due to share repurchases of $200.0 million, $74.8 million of cash paid for the remaining 50% equity interest in Mattel163, net of cash acquired, and capital expenditures of $65.1 million during the three months ended March 31, 2026. Mattel's cash and equivalents decreased by $377.7 million to $866.0 million at March 31, 2026 from $1.24 billion at March 31, 2025, primarily due to share repurchases of $640.0 million, capital expenditures of $210.9 million, and $74.8 million of cash paid for the remaining 50% equity interest in Mattel163, net of cash acquired, during the trailing twelve months ended March 31, 2026, partially offset by cash flows provided by operating activities of $545.5 million during that twelve-month period.

Accounts receivable decreased by $410.9 million to $686.7 million at March 31, 2026 from $1.10 billion at December 31, 2025, primarily due to seasonal declines as year-end receivables are collected. Accounts receivable increased by $53.4 million to $686.7 million at March 31, 2026 from $633.3 million at March 31, 2025, primarily due to higher net sales and the timing of collections.

Inventories increased by $113.7 million to $676.9 million at March 31, 2026 from $563.1 million at December 31, 2025, primarily due to seasonal inventory build-up. Inventories increased by $18.5 million to $676.9 million at March 31, 2026 from $658.4 million at March 31, 2025, primarily due to tariff related impacts in the United States, partially offset by higher net sales in the first quarter of 2026 and the impact of foreign currency translation.

Prepaid expenses and other current assets increased by $35.4 million to $262.5 million at March 31, 2026 from $227.1 million at December 31, 2025, primarily due to increases in prepaid income taxes of $37.1 million. Prepaid expenses and other current assets increased by $11.4 million to $262.5 million at March 31, 2026 from $251.1 million at March 31, 2025, primarily due to increases in prepaid income taxes of $30.3 million, partially offset by a decrease in prepaid insurance of $6.2 million.

Accounts payable and accrued liabilities decreased by $234.0 million to $1.19 billion at March 31, 2026 from $1.43 billion at December 31, 2025, primarily due to a decrease in accounts payable of $182.2 million, a decrease in accrued royalties of $52.2 million, a decrease in accrued advertising expenses of $42.8 million, and a decrease in taxes other than income taxes of $32.6 million, partially offset by higher deferred income of $57.3 million and higher interest payable of $29.9 million. Accounts payable and accrued liabilities increased by $62.6 million to $1.19 billion at March 31, 2026 from $1.13 billion at March 31, 2025, primarily due to higher deferred income of $63.8 million and an increase in accounts payable of $54.9 million, partially offset by lower accrued incentive compensation of $56.7 million.

A summary of Mattel's capitalization is as follows:

(In millions, except percentage information)

Total debt was $2.33 billion at both March 31, 2026 and December 31, 2025, and $2.34 billion at March 31, 2025. During 2025, Mattel issued $600.0 million of 2025 Senior Notes due November 2030 and used the proceeds plus cash on hand to repay $600.0 million of 2021 Senior Notes due April 2026.

Stockholders' equity decreased by $126.6 million to $2.11 billion at March 31, 2026 from $2.23 billion at December 31, 2025, primarily due to share repurchases of $201.7 million, partially offset by net income of $61.0 million during the three months ended March 31, 2026. Stockholders' equity decreased by $23.1 million to $2.11 billion at March 31, 2026 from $2.13 billion at March 31, 2025, primarily due to share repurchases of $645.7 million during the trailing twelve months ended March 31, 2026, partially offset by net income of $498.9 million and the net effect of share-based compensation and the related issuance of treasury stock of $60.1 million during that twelve-month period.

Litigation

See Part I, Item 1 "Financial Statements—Note 21 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 2025 Annual Report on Form 10-K and did not materially change during the first three months of 2026.

New Accounting Pronouncements

See Part I, Item 1 "Financial Statements—Note 23 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 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 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 impact Mattel's results of operations and cash flows. The Hong Kong dollar and Euro were the primary currencies that caused foreign currency transaction exposure for Mattel during the first three months of 2026. Mattel seeks to mitigate its exposure to 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 loss 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, 2026 were related to the general strengthening of the U.S. dollar against key currencies, including its net investments in entities having functional currencies denominated in 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 first quarter 2026 net sales by approximately 0.4% and would have less than a $0.01 impact to Mattel's net income per share.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2026, 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 were effective to provide reasonable assurance as of March 31, 2026.

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, 2026 that have materially affected, or are reasonably likely to materially affect, Mattel's internal control over financial reporting. Mattel is in the final stages of implementing a new enterprise resource planning system and related financial systems to replace certain existing core financial systems, with go-live in the second quarter of 2026. While these changes have not yet materially affected internal control over financial reporting as of March 31, 2026, they are reasonably likely to materially affect internal control over financial reporting in future periods as the systems are placed into service. Mattel will continue to monitor the impact of these systems on its internal control over financial reporting.

There have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in the 2025 Annual Report on Form 10-K.