|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | |
| | Derivatives Not Designated as Hedging Instruments |
| For the Nine Months Ended | | |
| September 30,
2024 | | September 30,
2023 | | Statements of
Operations
Classification |
| | (In thousands) | | |
| Amount of Net Gains (Losses) Recognized in the Statements of Operations: | | | | | |
| Foreign currency forward exchange and other contracts | $ | | | | $ | | | | Other non-operating income/expense, net |
| | | | | |
|
|
|
|
13.
| | $ | | | | $ | | | | $ | | |
| Liabilities: | | | | | | | |
| Foreign currency forward exchange and other contracts (a) | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| September 30, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
| Assets: | | | | | | | |
| Foreign currency forward exchange and other contracts (a) | $ | | | | $ | | | | $ | | | | $ | | |
| |
| Liabilities: | | | | | | | |
| Foreign currency forward exchange and other contracts (a) | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
| Assets: | | | | | | | |
| Foreign currency forward exchange and other contracts (a) | $ | | | | $ | | | | $ | | | | $ | | |
| Liabilities: | | | | | | | |
| Foreign currency forward exchange and other contracts (a) | $ | | | | $ | | | | $ | | | | $ | | |
(a)The fair value of the foreign currency forward exchange and other contracts was based on dealer quotes of market forward rates and reflects the amount that Mattel would receive or pay at their maturity dates for contracts involving the same notional amounts, currencies, and maturity dates.
billion (compared to a carrying amount of $ billion) as of September 30, 2024, $ billion (compared to a carrying amount of $ billion) as of September 30, 2023, and $ billion (compared to a carrying amount of $ billion) as of December 31, 2023. The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and were classified as Level 2 within the fair value hierarchy.14.
| | $ | | | | $ | | | | $ | | | | Weighted-average number of common shares | | | | | | | | | | | |
| Basic net income per common share | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
| Diluted: | | | | | | | |
| Net income | $ | | | | $ | | | | $ | | | | $ | | |
| Weighted-average number of common shares | | | | | | | | | | | |
| Dilutive share-based awards (a) | | | | | | | | | | | |
| Weighted-average number of common and potential common shares | | | | | | | | | | | |
| Diluted net income per common share | $ | | | | $ | | | | $ | | | | $ | | |
million and million share-based awards, respectively, were excluded from the calculation of diluted net income per common share because their effect would be antidilutive. For the three and nine months ended September 30, 2023, million and million share-based awards, respectively, were excluded from the calculation of diluted net income per common share because their effect would be antidilutive.
15.
| | $ | | | | $ | | | | $ | | | | Interest cost | | | | | | | | | | | |
| Expected return on plan assets | () | | | () | | | () | | | () | |
| Amortization of prior service cost | | | | | | | | | | | |
| Recognized actuarial loss | | | | | | | | | | | |
| Net periodic benefit cost | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | |
The components of Mattel's net periodic benefit credit for postretirement benefit plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| | (In thousands) |
| Interest cost | $ | | | | $ | | | | $ | | | | $ | | |
| Amortization of prior service credit | () | | | () | | | () | | | () | |
| Recognized actuarial gain | () | | | () | | | () | | | () | |
| Net periodic benefit credit | $ | () | | | $ | () | | | $ | () | | | $ | () | |
Mattel's service cost component is recorded within operating income while other components of net periodic pension cost and postretirement benefit cost are recorded within other non-operating (income) expense, net.
During the nine months ended September 30, 2024, Mattel made cash contributions totaling approximately $ million related to its defined benefit pension and postretirement benefit plans. During the remainder of 2024, Mattel expects to make additional cash contributions of approximately $ million.
16.
from the grant date. Stock options, RSUs, and performance awards generally provide for vesting over, or at the end of, a period of from the grant date.On September 30, 2024, a one-time retention award of performance-based restricted stock units (the "Retention Performance Grant") was granted to Ynon Kreiz, Mattel's Chief Executive Officer, in order to incentivize retention and drive significant stock price performance and market outperformance. The Retention Performance Grant has targeted approximately million performance-based restricted stock units granted under the Plan, which was determined based on a target value of $ million divided by the closing price of Mattel's common stock on the grant date. The Retention Performance Grant is % performance-based, with % of the Retention Performance Grant subject to vesting based on the achievement of the stock price hurdles during the final of the performance measurement period, and the remaining % of the Retention Performance Grant subject to vesting based on Mattel's relative Total Shareholder Return ("TSR") over the performance measurement period.
No portion of the Retention Performance Grant will be earned unless Mattel achieves rigorous performance goals and Mr. Kreiz remains employed through the settlement date following the completion of a vesting period from September 30, 2024 to September 30, 2029, subject to potential acceleration upon certain qualifying terminations of employment. The grant also allows for a maximum potential earnout of % of the targeted number of performance-based restricted stock units.
per unit and total estimated grant-date fair value of $ million, which will be recognized on a straight-line basis over the service period. | | $ | | | | $ | | | | $ | | | | RSU compensation expense | | | | | | | | | | | |
| Performance award compensation expense | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | |
As of September 30, 2024, total unrecognized compensation expense related to unvested share-based payments totaled $ million and is expected to be recognized over a weighted-average period of years.
Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises and the vesting of RSUs and performance awards. Cash received for stock option exercises, net of taxes, was $ million and $ million for the nine months ended September 30, 2024 and 2023, respectively.
17.
| | $ | | | | $ | | | | $ | | | | Amortization of intangible assets | | | | | | | | | | | |
18.
| | $ | | | | $ | | | | $ | | | | Other selling and administrative expenses (b) | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | |
(a)Severance and other restructuring charges 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 charges 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."
| | $ | | | | $ | () | | | $ | | | | Other restructuring charges (a) | | | | | | | () | | | | |
| $ | | | | $ | | | | $ | () | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Liability at December 31, 2022 | | Charges | | Payments/Utilization | | Liability at
September 30, 2023 |
| (In thousands) |
| Severance | $ | | | | $ | | | | $ | | | | $ | | |
| Other restructuring charges | | | | | | | | | | | |
| $ | | | | $ | | | | $ | | | | $ | | |
(a)Other restructuring charges consist primarily of expenses associated with the consolidation of manufacturing facilities.
As of September 30, 2024, in connection with the OPG program, Mattel recorded cumulative severance and other restructuring charges of approximately $ million, which included approximately $ million of non-cash charges. Total expected cash expenditures are approximately $ to $ million and total non-cash charges are expected to be up to $ million.
Other Cost Savings Actions
As of December 31, 2023, Mattel concluded the OFG program, a multi-year cost savings program that had integrated and expanded upon the previous Capital Light program. In connection with the OFG program, Mattel recorded severance and other restructuring charges of $ million and $ million within other selling and administrative expenses during the three and nine months ended September 30, 2023, respectively, and a credit to severance and other restructuring charges of ($) million and ($) million within cost of sales during the three and nine months ended September 30, 2023, respectively, in the consolidated statement of operations.
Additionally, during the three and nine months ended September 30, 2023, Mattel executed actions to further streamline its organizational structure that were not included in the OFG program. In connection with these actions, Mattel recorded severance charges of $ million and $ million within other selling and administrative expenses during the three and nine months ended September 30, 2023, respectively, in the consolidated statement of operations.
19.
million and $ million for the three and nine months ended September 30, 2024, respectively, and $ million and $ million for the three and nine months ended September 30, 2023, respectively. Mattel recognized a net discrete income tax benefit of $ million during the three months ended September 30, 2024, primarily related to reassessments of prior years' tax liabilities, partially offset by the establishment of a valuation allowance on certain foreign deferred tax assets. Mattel recognized a net discrete income tax benefit of $ million during the nine months ended September 30, 2024, primarily related to reassessment of prior years' tax liabilities and discrete tax benefit on tax elections filed to amortize certain intangible assets transferred as part of Mattel's intra-group intellectual property ("IP") rights transfer. Mattel recognized a net discrete income tax expense of $ million and $ million during the three and nine months ended September 30, 2023, respectively, which included the establishment of a valuation allowance of $ million on certain foreign deferred tax assets resulting from the intra-group transfer of certain IP rights, partially offset by undistributed earnings of certain foreign subsidiaries and reassessments of prior years' tax liabilities.Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the third quarter of 2024, there were no material changes to Mattel's valuation allowance.
In the normal course of business, Mattel is regularly audited by federal, state, and foreign tax authorities. Based on the current status of federal, state, and foreign audits, Mattel believes it is reasonably possible that in the next 12 months, the total unrecognized tax benefits could decrease by $ million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate settlement of any particular issue with the applicable taxing authority could have a material impact on Mattel's consolidated financial statements.
20.
statewide consumer classes comprised of those who purchased the Sleeper as marketed as safe for prolonged and overnight sleep. The class actions have been consolidated before a single judge in the United States District Court for the Western District of New York for pre-trial purposes pursuant to the U.S. federal courts' Multi-District Litigation program. In June 2022, the court denied the plaintiffs' motion to certify damages and injunctive relief classes under New York law, but granted plaintiffs' request to certify a New York issue class to resolve issues on a class-wide basis. In October 2022, the United States Court of Appeals for the Second Circuit denied plaintiffs' petition to appeal the denial of certification of the damages and injunctive relief classes. On July 24, 2024, the parties filed a settlement agreement with the court to resolve this litigation. On August 9, 2024, the settlement was preliminarily approved by the court. A final approval hearing is scheduled for January 28, 2025. As of September 30, 2024, Mattel assessed its probable loss related to this matter and has accrued an estimated liability, which is not material. additional lawsuits filed between April 2019 and September 2024 are pending against Fisher-Price, Inc. and Mattel, Inc. alleging that a product defect in the Sleeper caused the fatalities of or injuries to children. More than thirty lawsuits have been settled and/or dismissed. Additionally, Fisher-Price, Inc. and/or Mattel, Inc. have also received letters from lawyers purporting to represent additional plaintiffs who have threatened to assert similar claims.
In addition, a stockholder has filed a derivative action in the Court of Chancery for the State of Delaware (Kumar v. Bradley, et al., filed July 7, 2020) alleging breach of fiduciary duty and unjust enrichment related to the development, marketing, and sale of the Sleeper. The defendants in the derivative action are certain of Mattel's current and former officers and directors. In August 2021, a second similar derivative action was filed in the Court of Chancery for the State of Delaware (Armon v. Bradley, et al., filed August 30, 2021). The parties have reached a settlement in principle of this litigation, which is subject to approval by the court. As of September 30, 2024, Mattel has determined that a recovery of prior losses in this matter is probable and has accrued for the estimated amount, which is not material.
The lawsuits seek compensatory damages, punitive damages, statutory damages, restitution, disgorgement, attorneys' fees, costs, interest, declaratory relief, and/or injunctive relief. Mattel believes that it has substantial defenses to the allegations in the lawsuits and intends to vigorously defend against them. Except as specifically noted above, a reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time.
Litigation Related to the Fisher-Price Snuga Swings
Purported class action lawsuits against Fisher-Price, Inc. and Mattel, Inc. have been filed in United States District Courts for the Western District of New York (Bigelow v. Mattel, Inc., et al., filed October 17, 2024, and Wall v. Mattel, Inc. et al., filed October 25, 2024), and the Central District of California (Shahbaz v. Fisher-Price, Inc., et al., filed October 24, 2024). The lawsuits assert claims for false advertising, breach of contract, breach of warranty, fraud, negligence, and other claims in connection with the marketing and sale of Fisher-Price Snuga Swings (the "Swings"). In general, the lawsuits allege that the Swings were falsely marketed and sold as safe for infant use, particularly infant sleep, and failed to disclose a risk of suffocation. The lawsuits propose nationwide and several state consumer classes comprised of those who purchased Swings.
21.
| | $ | | | | $ | | | | $ | | | | International | | | | | | | | | | | |
| Net sales | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| | (In thousands) |
| Operating Income by Segment (a) | | | | | | | |
| North America | $ | | | | $ | | | | $ | | | | $ | | |
| International | | | | | | | | | | | |
| | | | | | | | | | | |
Corporate and other expense (b) | () | | | () | | | () | | | () | |
| Operating income | | | | | | | | | | | |
| Interest expense | | | | | | | | | | | |
| Interest (income) | () | | | () | | | () | | | () | |
| Other non-operating (income) expense, net | () | | | () | | | | | | () | |
| Income before income taxes | $ | | | | $ | | | | $ | | | | $ | | |
(a)Segment operating income included (i) severance and other restructuring charges of $ million and $ million for the three and nine months ended September 30, 2024, respectively, and $() million and $() million for the three and nine months ended September 30, 2023, respectively, which were allocated to the North America and International segments; and (ii) a loss on sale of assets of $ million from the sale of a production facility for the three and nine months ended September 30, 2023, which was recorded in the International segment.
(b)Corporate and other expense included (i) severance and other restructuring charges of $ million and $ million for the three and nine months ended September 30, 2024, respectively, and $ million and $ million for the three and nine months ended September 30, 2023, respectively; and (ii) inclined sleeper product recall impact of $() million and $() million for the three and nine months ended September 30, 2024, respectively and $ million and $ million for the three and nine months ended September 30, 2023, respectively.
| | $ | | | | $ | | | | International | | | | | | | | |
| | | | | | | | |
| Corporate and other | | | | | | | | |
| Accounts receivable, net and inventories | $ | | | | $ | | | | $ | | |
Geographic Information
| | $ | | | | $ | | | | $ | | | | International | | | | | | | |
| EMEA | | | | | | | | | | | |
| Latin America | | | | | | | | | | | |
| Asia Pacific | | | | | | | | | | | |
| Total International | | | | | | | | | | | |
| Net sales | $ | | | | $ | | | | $ | | | | $ | | |
22.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 and 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. American Girl, with an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products, is best known for imparting valuable life lessons that instill confidence through its inspiring dolls and books, featuring diverse characters from past and present.
Infant, Toddler, and Preschool—including brands such as Fisher-Price (including Little People) and Thomas & Friends. As a leader in play and child development, Fisher-Price's mission is to help families by making the most fun, enriching products for infants, toddlers, and preschoolers. Thomas & Friends is an award-winning preschool train brand franchise that brings meaningful life lessons of friendship and teamwork to kids through toys, content, live events, and other consumer products.
In the first quarter of 2024, Mattel further divided its Infant, Toddler, and Preschool category 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 has decided to strategically out-license or exit certain product lines.
Vehicles—including brands such as Hot Wheels (including Hot Wheels Monster Trucks and Hot Wheels Mario Kart (Nintendo)), Matchbox, and Cars (Disney Pixar). In production for over 50 years, Hot Wheels continues to push the limits of performance and design, and ignites 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 2024, Mattel continued to execute its multi-year strategy to grow its IP-driven toy business and expand its entertainment offering. Mattel achieved gross margin expansion, continued to improve in profitability compared to the third quarter of 2023, and ended the quarter in a strong financial position.
Mattel's third quarter net sales declined 4% compared to the third quarter of 2023, which benefited from the success of the Barbie movie. Mattel's third quarter results included improvement to operating cash flows, as well as gross margin expansion to 53.1%, from 51.0% in the third quarter of 2023, with benefits from supply chain and other efficiencies, the Optimizing for Profitable Growth program ("OPG program"), favorable foreign currency exchange, and cost deflation. Earnings per share in the third quarter of 2024 increased to $1.09, compared to $0.41 in the third quarter of 2023.
Mattel ended the third quarter with a cash balance of $723.5 million, compared to $455.7 million in the third quarter of 2023. Cash increased primarily due to Mattel's cash flows from operations, which were $887.8 million during the trailing twelve months, due to an increase in net income, excluding the impact of non-cash items, and improved working capital. This increase was partially offset by cash used for share repurchases and capital expenditures, including the acquisition of a property that will serve as Mattel's new global design center, which will replace a facility that is currently leased.
On February 5, 2024, the Board of Directors authorized a $1.00 billion share repurchase program. During the first nine months of 2024, Mattel executed $268.3 million of share repurchases under the program.
Additionally, in July 2024, Mattel entered into a new $1.40 billion revolving credit facility (the "New Revolving Credit Facility"), which replaced its prior revolving credit facility (the "Prior Revolving Credit Facility"). The New Revolving Credit Facility matures in July 2029.
Mattel is operating in a macro-economic environment 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 2023 Annual Report on Form 10-K 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 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | Year/Year Change |
| September 30, 2024 | | September 30, 2023 | |
| Amount | | % of Net
Sales | | Amount | | % of Net
Sales | | % | | Basis Points
of Net Sales |
| (In millions, except percentage and basis point information) |
| Net sales | $ | 1,843.9 | | | | | $ | 1,918.8 | | | | | -4 | % | | |
| Cost of sales | 864.9 | | | 46.9 | % | | 940.9 | | | 49.0 | % | | -8 | % | | (210) | |
| Gross profit | 979.0 | | | 53.1 | % | | 977.9 | | | 51.0 | % | | — | % | | 210 | |
| Advertising and promotion expenses | 105.0 | | | 5.7 | % | | 124.3 | | | 6.5 | % | | -16 | % | | (80) | |
| Other selling and administrative expenses | 385.7 | | | 20.9 | % | | 379.8 | | | 19.8 | % | | 2 | % | | 110 | |
| Operating income | 488.3 | | | 26.5 | % | | 473.9 | | | 24.7 | % | | 3 | % | | 180 | |
| Interest expense | 29.4 | | | 1.6 | % | | 30.7 | | | 1.6 | % | | -4 | % | | — | |
| Interest (income) | (9.8) | | | -0.5 | % | | (4.6) | | | -0.2 | % | | 114 | % | | (30) | |
| Other non-operating (income), net | (2.9) | | | | | (2.4) | | | | | | | |
| Income before income taxes | 471.7 | | | 25.6 | % | | 450.1 | | | 23.5 | % | | 5 | % | | 210 | |
| Provision for income taxes | 106.4 | | | | | 309.3 | | | | | | | |
| (Income) from equity method investments | (7.0) | | | | | (5.6) | | | | | | | |
| Net income | $ | 372.4 | | | 20.2 | % | | $ | 146.3 | | | 7.6 | % | | 154 | % | | 1,260 | |
Sales
Net sales in the third quarter of 2024 were $1.84 billion, a decrease of $74.9 million, or 4%, as compared to $1.92 billion in the third quarter of 2023. The decrease in net sales was primarily due to a decrease in gross billings of $70.6 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 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| (In millions, except percentage information) |
| Gross Billings by Categories | | | | | | | |
| Dolls | $ | 757.1 | | | $ | 884.5 | | | -14 | % | | -1 | % |
| Infant, Toddler, and Preschool | 349.8 | | | 361.1 | | | -3 | % | | -1 | % |
| Vehicles | 580.0 | | | 518.5 | | | 12 | % | | -1 | % |
| Action Figures, Building Sets, Games, and Other | 364.3 | | | 357.7 | | | 2 | % | | -1 | % |
| Gross Billings | $ | 2,051.1 | | | $ | 2,121.8 | | | -3 | % | | -1 | % |
| | | | | | | |
| Supplemental Gross Billings Disclosure | | | | | | | |
| Gross Billings by Top 3 Power Brands | | | | | | | |
| Barbie | $ | 500.6 | | | $ | 605.1 | | | -17 | % | | — | % |
| Hot Wheels | 508.2 | | | 454.8 | | | 12 | % | | -1 | % |
| Fisher-Price (a) | 265.4 | | | 264.3 | | | — | % | | -1 | % |
| Other | 777.0 | | | 797.6 | | | -3 | % | | -1 | % |
| Gross Billings | $ | 2,051.1 | | | $ | 2,121.8 | | | -3 | % | | -1 | % |
(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products. Prior period amounts have been reclassified to conform to the current presentation.
Gross billings were $2.05 billion in the third quarter of 2024, a decrease of $70.6 million, or 3%, as compared to $2.12 billion in the third quarter of 2023, with an unfavorable impact from changes in currency exchange rates of one percentage point. The decrease in gross billings was primarily due to lower billings of Dolls and Infant, Toddler, and Preschool products, partially offset by higher billings of Vehicles and Action Figures, Building Sets, Games, and Other products.
Dolls gross billings decreased 14%, of which 12% was due to lower billings of Barbie, which benefited from the Barbie movie in the prior year, and 2% was due to lower billings of Trolls (NBCUniversal) products.
Infant, Toddler, and Preschool gross billings decreased 3%, due to lower billings of Baby Gear and Power Wheels products.
Vehicles gross billings increased 12%, primarily due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 2%, of which 8% was due to higher billings of Games products, partially offset by lower billings of Other products of 3% and lower billings of Building Sets products of 3%.
Sales adjustments generally represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. 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 $207.2 million in the third quarter of 2024, from $203.0 million in the third quarter of 2023. Sales adjustments as a percentage of net sales increased to 11.2% in the third quarter of 2024, as compared to 10.6% in the third quarter of 2023. The increase in sales adjustments as a percentage of net sales was primarily due to 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 $75.9 million, or 8%, to $864.9 million in the third quarter of 2024 from $940.9 million in the third quarter of 2023. Within cost of sales, product and other costs decreased by $65.2 million, or 9%, to $696.1 million in the third quarter of 2024 from $761.3 million in the third quarter of 2023. Freight and logistics expenses decreased by $7.0 million, or 8%, to $84.9 million in the third quarter of 2024 from $92.0 million in the third quarter of 2023. Royalty expense decreased by $3.7 million, or 4%, to $83.9 million in the third quarter of 2024 from $87.6 million in the third quarter of 2023.
Gross Margin
Gross margin increased to 53.1% in the third quarter of 2024 from 51.0% in the third quarter of 2023. The increase in gross margin included supply chain and other efficiencies of 190 basis points, incremental realized savings from the OPG program of 80 basis points, favorable foreign currency exchange of 70 basis points, and cost deflation of 50 basis points, partially offset by unfavorable mix of 180 basis points.
Advertising and Promotion Expenses
Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs, (iii) retail advertising costs, which include consumer direct catalogs, and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to 5.7% in the third quarter of 2024, as compared to 6.5% in the third quarter of 2023, primarily due to a shift in the expected timing of advertising and promotion programs to the fourth quarter of 2024.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $385.7 million, or 20.9% of net sales, in the third quarter of 2024, an increase of $5.9 million, as compared to $379.8 million, or 19.8% of net sales, in the third quarter of 2023. The increase in other selling and administrative expenses was primarily due to employee compensation increases and higher incentive compensation of $25.2 million, partially offset by realized savings from cost savings programs of $7.5 million.
Interest Expense
Interest expense was $29.4 million in the third quarter of 2024, relatively flat as compared to $30.7 million in the third quarter of 2023.
Interest Income
Interest income increased by $5.2 million to $9.8 million in the third quarter of 2024 from $4.6 million in the third quarter of 2023, primarily due to higher average invested cash balances in the third quarter of 2024.
Provision for Income Taxes
Mattel's provision for income taxes was $106.4 million in the third quarter of 2024, as compared to $309.3 million in the third quarter of 2023. The decrease in provision for income taxes was primarily due to changes in discrete income taxes. During the three months ended September 30, 2023, Mattel recognized a net discrete income tax expense of $200.7 million, which included the establishment of a valuation allowance of $212.4 million on certain foreign deferred tax assets during the third quarter of 2023 resulting from the intra-group transfer of certain IP rights, partially offset by other discrete income tax benefits of $11.7 million. During the three months ended September 30, 2024, Mattel recognized a net discrete tax benefit of $3.4 million primarily related to reassessments of prior years' tax liabilities, 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. During the third quarter of 2024, there were no material changes to Mattel's valuation allowance.
The Organization for Economic Co-operation and Development ("OECD") reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries continue to announce changes in their tax laws and regulations based on the Pillar Two rules. Mattel is continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available. Some of the legislative changes could impact Mattel's effective tax rate and tax liabilities. When and how these laws and regulations are adopted or enacted by various countries in which Mattel operates could increase tax complexity and uncertainty and may adversely affect Mattel's worldwide effective tax rate, income tax expense and cash flows. Mattel does not expect the provisions effective in 2024 to have a materially adverse impact on its results of operations, financial position, or cash flows.
Segment Results
North America Segment
Beginning in the first quarter of 2024, Mattel's American Girl business was integrated into its North America commercial organization and is reported within the North America operating segment. Prior to the first quarter of 2024, Mattel's American Girl business was a separate reportable operating segment. Prior period amounts have been reclassified to conform to the current period presentation.
The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for the third quarter of 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| | (In millions, except percentage information) |
| Net Sales | $ | 1,108.3 | | | $ | 1,147.0 | | | -3 | % | | — | % |
| Segment Operating Income | 412.4 | | | 401.1 | | | 3 | % | | |
Net sales for the North America segment in the third quarter of 2024 were $1.11 billion, a decrease of $38.7 million, or 3%, as compared to $1.15 billion in the third quarter of 2023. The decrease in net sales was primarily due to a decrease in gross billings of $36.6 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| (In millions, except percentage information) |
| Gross Billings by Categories | | | | | | | |
| Dolls | $ | 442.3 | | | $ | 512.7 | | | -14 | % | | — | % |
| Infant, Toddler, and Preschool | 228.0 | | | 230.6 | | | -1 | % | | — | % |
| Vehicles | 288.5 | | | 263.4 | | | 10 | % | | — | % |
| Action Figures, Building Sets, Games, and Other | 225.5 | | | 214.1 | | | 5 | % | | — | % |
| Gross Billings | $ | 1,184.3 | | | $ | 1,220.9 | | | -3 | % | | — | % |
| | | | | | | |
| Supplemental Gross Billings Disclosure | | | | | | | |
| Gross Billings by Top 3 Power Brands | | | | | | | |
| Barbie | $ | 285.1 | | | $ | 349.9 | | | -19 | % | | — | % |
| Hot Wheels | 249.7 | | | 225.7 | | | 11 | % | | — | % |
| Fisher-Price (a) | 168.5 | | | 166.5 | | | 1 | % | | — | % |
| Other | 481.0 | | | 478.7 | | | — | % | | — | % |
| Gross Billings | $ | 1,184.3 | | | $ | 1,220.9 | | | -3 | % | | — | % |
(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products. Prior period amounts have been reclassified to conform to the current presentation.
Gross billings for the North America segment were $1.18 billion in the third quarter of 2024, a decrease of $36.6 million, or 3%, as compared to $1.22 billion in the third quarter of 2023. The decrease in the North America segment gross billings was due to lower billings of Dolls and Infant, Toddler, and Preschool products, partially offset by higher billings of Vehicles and Action Figures, Building Sets, Games, and Other products.
Dolls gross billings decreased 14%, primarily due to lower billings of Barbie, which benefited from the Barbie movie in the prior year.
Infant, Toddler, and Preschool gross billings decreased 1%, due to lower billings of Baby Gear and Power Wheels products.
Vehicles gross billings increased 10%, primarily due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 5%, of which 8% was due to higher billings of Games products and 3% was due to higher billings of Action Figures products, partially offset by lower billings of Building Sets products of 3% and lower billings of Other products of 3%.
Sales adjustments increased to $76.0 million in the third quarter of 2024 from $73.9 million in the third quarter of 2023. Sales adjustments as a percentage of net sales was relatively consistent at 6.9% in the third quarter of 2024, as compared to 6.4% in the third quarter of 2023.
Cost of sales decreased by $38.6 million, or 7%, to $534.8 million in the third quarter of 2024 from $573.4 million in the third quarter of 2023, primarily due to a decrease in product and other costs of $29.4 million and a decrease in freight and logistics expenses of $8.4 million.
Gross margin increased to 51.7% in the third quarter of 2024 from 50.0% in the third quarter of 2023. The increase in gross margin included supply chain and other efficiencies of 200 basis points, incremental realized savings from the OPG program of 80 basis points, and cost deflation of 60 basis points, partially offset by unfavorable mix of 170 basis points.
North America segment operating income was $412.4 million in the third quarter of 2024, as compared to $401.1 million in the third quarter of 2023, primarily due to lower advertising and promotion expenses of $15.0 million, partially offset by higher other selling and administrative expenses of $3.6 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 third quarter of 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| (In millions, except percentage information) |
| Net Sales | $ | 735.6 | | | $ | 771.8 | | | -5 | % | | -2 | % |
| Segment Operating Income | 217.7 | | | 202.5 | | | 7 | % | | |
Net sales for the International segment in the third quarter of 2024 were $735.6 million, a decrease of $36.2 million, or 5%, as compared to $771.8 million in the third quarter of 2023. The decrease in net sales was primarily due to a decrease in gross billings of $34.1 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| (In millions, except percentage information) |
| Gross Billings by Categories | | | | | | | |
| Dolls | $ | 314.8 | | | $ | 371.7 | | | -15 | % | | -1 | % |
| Infant, Toddler, and Preschool | 121.8 | | | 130.5 | | | -7 | % | | -3 | % |
| Vehicles | 291.5 | | | 255.0 | | | 14 | % | | -2 | % |
| Action Figures, Building Sets, Games, and Other | 138.8 | | | 143.6 | | | -3 | % | | -2 | % |
| Gross Billings | $ | 866.8 | | | $ | 900.9 | | | -4 | % | | -2 | % |
| | | | | | | |
| Supplemental Gross Billings Disclosure | | | | | | | |
| Gross Billings by Top 3 Power Brands | | | | | | | |
| Barbie | $ | 215.5 | | | $ | 255.2 | | | -16 | % | | -1 | % |
| Hot Wheels | 258.4 | | | 229.1 | | | 13 | % | | -2 | % |
| Fisher-Price (a) | 96.9 | | | 97.7 | | | -1 | % | | -3 | % |
| Other | 296.1 | | | 318.9 | | | -7 | % | | -2 | % |
| Gross Billings | $ | 866.8 | | | $ | 900.9 | | | -4 | % | | -2 | % |
(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products. Prior period amounts have been reclassified to conform to the current presentation.
Gross billings for the International segment were $866.8 million in the third quarter of 2024, a decrease of $34.1 million, or 4%, as compared to $900.9 million in the third quarter of 2023, with an unfavorable impact from changes in currency exchange rates of two percentage points. The decrease in the International segment gross billings was due to lower billings of Dolls, Infant, Toddler, and Preschool, and Action Figures, Building Sets, Games, and Other products, partially offset by higher billings of Vehicles products.
Dolls gross billings decreased 15%, of which 11% was due to lower billings of Barbie, which benefited from the Barbie movie in the prior year, 2% was due to lower billings of Polly Pocket products, and 2% was due to lower billings of Trolls (NBCUniversal) products.
Infant, Toddler, and Preschool gross billings decreased 7%, of which 3% was due to lower billings of Baby Gear and Power Wheels products and 3% was due to lower billings of Preschool Entertainment products.
Vehicles gross billings increased 14%, primarily due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings decreased 3%, of which 4% was due to lower billings of Other products, 3% was due to lower billings of Building Sets products, and 3% was due to lower billings of Action Figures products, partially offset by higher billings of Games products of 7%.
Sales adjustments increased to $131.2 million in the third quarter of 2024 from $129.1 million in the third quarter of 2023. Sales adjustments as a percentage of net sales increased to 17.8% in the third quarter of 2024, as compared to 16.7% in the third quarter of 2023. The increase in sales adjustments as a percentage of net sales was primarily due to a shift in sales channel mix resulting in a higher proportion of sales with higher average sales adjustment rates.
Cost of sales decreased by $43.8 million, or 11%, to $355.6 million in the third quarter of 2024 from $399.4 million in the third quarter of 2023, primarily due to a decrease in product and other costs of $42.2 million.
Gross margin increased to 51.7% in the third quarter of 2024 from 48.3% in the third quarter of 2023. The increase in gross margin included favorable foreign currency exchange of 250 basis points, supply chain and other efficiencies of 220 basis points, incremental realized savings from the OPG program of 80 basis points, and cost deflation of 30 basis points, partially offset by unfavorable mix of 240 basis points.
International segment operating income was $217.7 million in the third quarter of 2024, as compared to $202.5 million in the third quarter of 2023, due to higher gross profit of $7.6 million, lower advertising and promotion expenses of $4.3 million, and lower other selling and administrative expenses of $3.3 million.
Results of Operations—First Nine Months
Consolidated Results
The following table presents Mattel's consolidated results for the first nine months of 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended | | Year/Year Change |
| September 30, 2024 | | September 30, 2023 | |
| Amount | | % of Net
Sales | | Amount | | % of Net
Sales | | % | | Basis Points
of Net Sales |
| (In millions, except percentage and basis point information) |
| Net sales | $ | 3,733.1 | | | | | $ | 3,820.5 | | | | | -2 | % | | |
| Cost of sales | 1,834.5 | | | 49.1 | % | | 2,027.0 | | | 53.1 | % | | -9 | % | | (400) | |
| Gross profit | 1,898.6 | | | 50.9 | % | | 1,793.5 | | | 46.9 | % | | 6 | % | | 400 | |
| Advertising and promotion expenses | 250.1 | | | 6.7 | % | | 290.3 | | | 7.6 | % | | -14 | % | | (90) | |
| Other selling and administrative expenses | 1,112.5 | | | 29.8 | % | | 1,081.6 | | | 28.3 | % | | 3 | % | | 150 | |
| Operating income | 536.0 | | | 14.4 | % | | 421.6 | | | 11.0 | % | | 27 | % | | 340 | |
| Interest expense | 89.4 | | | 2.4 | % | | 92.5 | | | 2.4 | % | | -3 | % | | — | |
| Interest (income) | (39.5) | | | -1.1 | % | | (15.4) | | | -0.4 | % | | 156 | % | | (70) | |
| Other non-operating expense (income), net | 8.8 | | | | | (6.0) | | | | | | | |
| Income before income taxes | 477.3 | | | 12.8 | % | | 350.5 | | | 9.2 | % | | 36 | % | | 360 | |
| Provision for income taxes | 94.8 | | | | | 296.8 | | | | | | | |
| (Income) from equity method investments | (18.4) | | | | | (13.3) | | | | | | | |
| Net income | $ | 401.0 | | | 10.7 | % | | $ | 67.0 | | | 1.8 | % | | 498 | % | | 890 | |
Sales
Net sales in the first nine months of 2024 were $3.73 billion, a decrease of $87.4 million, or 2%, as compared to $3.82 billion in the first nine months of 2023. The decrease in net sales was due to a decrease in gross billings of $109.2 million, partially offset by a decrease in sales adjustments of $21.8 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 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| | (In millions, except percentage information) |
| Gross Billings by Categories | | | | | | | |
| Dolls | $ | 1,465.6 | | | $ | 1,631.1 | | | -10 | % | | — | % |
| Infant, Toddler, and Preschool | 675.1 | | | 708.6 | | | -5 | % | | — | % |
| Vehicles | 1,247.4 | | | 1,165.9 | | | 7 | % | | — | % |
| Action Figures, Building Sets, Games, and Other | 763.2 | | | 755.0 | | | 1 | % | | — | % |
| Gross Billings | $ | 4,151.4 | | | $ | 4,260.6 | | | -3 | % | | — | % |
| | | | | | | |
| Supplemental Gross Billings Disclosure | | | | | | | |
| Gross Billings by Top 3 Power Brands | | | | | | | |
| Barbie | $ | 944.1 | | | $ | 1,064.7 | | | -11 | % | | — | % |
| Hot Wheels | 1,093.7 | | | 1,014.9 | | | 8 | % | | -1 | % |
| Fisher-Price (a) | 494.7 | | | 480.6 | | | 3 | % | | — | % |
| Other | 1,618.9 | | | 1,700.4 | | | -5 | % | | — | % |
| Gross Billings | $ | 4,151.4 | | | $ | 4,260.6 | | | -3 | % | | — | % |
(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products. Prior period amounts have been reclassified to conform to the current presentation.
Gross billings were $4.15 billion in the first nine months of 2024, a decrease of $109.2 million, or 3%, as compared to $4.26 billion in the first nine months of 2023. 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 Vehicles and Action Figures, Building Sets, Games, and Other products.
Dolls gross billings decreased 10%, of which 7% was due to lower billings of Barbie, which benefited from the Barbie movie in the prior year, and 2% was due to lower billings of Disney Princess and Disney Frozen products.
Infant, Toddler, and Preschool gross billings decreased 5%, of which 4% was due to lower billings of Baby Gear and Power Wheels products and 2% was due to lower billings of Preschool Entertainment products, partially offset by higher billings of Fisher-Price products of 2%.
Vehicles gross billings increased 7%, primarily due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 1%, of which 7% was due to higher billings of Games products, partially offset by lower billings of Other products of 3% and lower billings of Building Sets products of 2%.
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 decreased to $418.3 million in the first nine months of 2024 from $440.1 million in the first nine months of 2023. Sales adjustments as a percentage of net sales were relatively consistent at 11.2% in the first nine months of 2024, as compared to 11.5% in the first nine months of 2023.
Cost of Sales
Cost of sales decreased by $192.5 million, or 9%, to $1.83 billion in the first nine months of 2024 from $2.03 billion in the first nine months of 2023. Within cost of sales, product and other costs decreased by $180.5 million, or 11%, to $1.44 billion in the first nine months of 2024 from $1.62 billion in the first nine months of 2023. Royalty expense decreased by $7.2 million, or 4%, to $167.7 million in the first nine months of 2024 from $175.0 million in the first nine months of 2023. Freight and logistics expenses decreased by $4.7 million, or 2%, to $225.5 million in the first nine months of 2024, as compared to $230.2 million in the first nine months of 2023.
Gross Margin
Gross margin increased to 50.9% in the first nine months of 2024 from 46.9% in the first nine months of 2023. The increase in gross margin was primarily due to supply chain and other efficiencies of 270 basis points, cost deflation of 100 basis points, incremental realized savings from the OPG program of 100 basis points, and favorable foreign currency exchange of 30 basis points, partially offset by unfavorable mix of 100 basis points.
Advertising and Promotion Expenses
Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs, (iii) retail advertising costs, which include consumer direct catalogs; and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to 6.7% in the first nine months of 2024, as compared to 7.6% in the first nine months of 2023, primarily due to a shift in the expected timing of advertising and promotion programs to the fourth quarter of 2024.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $1.11 billion, or 29.8% of net sales, in the first nine months of 2024, an increase of $30.9 million, as compared to $1.08 billion, or 28.3% of net sales, in the first nine months of 2023. The increase in other selling and administrative expenses was primarily due to employee compensation increases and higher incentive compensation of $44.5 million, partially offset by realized savings from cost savings programs of $23.5 million and lower severance and restructuring charges of $19.2 million.
Interest Expense
Interest expense was $89.4 million in the first nine months of 2024, relatively flat as compared to $92.5 million in the first nine months of 2023.
Interest Income
Interest income increased by $24.1 million to $39.5 million in the first nine months of 2024 from $15.4 million in the first nine months of 2023, primarily due to higher average invested cash balances in the first nine months of 2024.
Provision for Income Taxes
Mattel's provision for income taxes was $94.8 million for the first nine months of 2024, as compared to $296.8 million for the first nine months of 2023. The decrease in provision for income taxes was due to discrete income tax expense in the first nine months of 2023, partially offset by the impact of higher income before income taxes in the first nine months of 2024, net of discrete income tax benefits. During the first nine months of 2023, Mattel recognized a net discrete income tax expense of $201.0 million, which included the establishment of a valuation allowance of $212.4 million on certain foreign deferred tax assets during the third quarter of 2023 resulting from the intra-group transfer of certain IP rights, partially offset by other discrete income tax benefits of $11.4 million. During the first nine months of 2024, Mattel recognized a net discrete tax benefit of $16.3 million primarily related to reassessments of prior years' tax liabilities and a discrete tax benefit on tax elections filed to amortize certain intangible assets transferred as part of Mattel's intra-group IP rights transfer.
Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the third quarter of 2024, there were no material changes to Mattel's valuation allowance.
The OECD reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries continue to announce changes in their tax laws and regulations based on the Pillar Two rules. Mattel is continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available. Some of the legislative changes could impact Mattel's effective tax rate and tax liabilities. When and how these laws and regulations are adopted or enacted by various countries in which Mattel operates could increase tax complexity and uncertainty and may adversely affect Mattel's worldwide effective tax rate, income tax expense and cash flows. Mattel does not expect the provisions effective in 2024 to have a materially adverse impact on its results of operations, financial position, or cash flows.
Segment Results
North America Segment
Beginning in the first quarter of 2024, Mattel's American Girl business was integrated into its North America commercial organization and is reported within the North America operating segment. Prior to the first quarter of 2024, Mattel's American Girl business was a separate reportable operating segment. Prior period amounts have been reclassified to conform to the current period presentation.
The following tables provide a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for the first nine months of 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30, 2024 | | September 30, 2023 | |
| (In millions, except percentage information) |
| Net Sales | $ | 2,192.6 | | | $ | 2,241.9 | | | -2 | % | | — | % |
| Segment Operating Income | 622.3 | | | 565.6 | | | 10 | % | | |
Net sales for the North America segment in the first nine months of 2024 were $2.19 billion, a decrease of $49.3 million, or 2%, as compared to $2.24 billion in the first nine months of 2023. The decrease in net sales was primarily due to a decrease in gross billings of $51.8 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30, 2024 | | September 30, 2023 | |
| (In millions, except percentage information) |
| Gross Billings by Categories | | | | | | | |
| Dolls | $ | 838.2 | | | $ | 919.1 | | | -9 | % | | — | % |
| Infant, Toddler, and Preschool | 420.1 | | | 437.7 | | | -4 | % | | — | % |
| Vehicles | 605.5 | | | 579.1 | | | 5 | % | | — | % |
| Action Figures, Building Sets, Games, and Other | 473.8 | | | 453.4 | | | 5 | % | | — | % |
| Gross Billings | $ | 2,337.6 | | | $ | 2,389.3 | | | -2 | % | | — | % |
| | | | | | | |
| Supplemental Gross Billings Disclosure | | | | | | | |
| Gross Billings by Top 3 Power Brands | | | | | | | |
| Barbie | $ | 517.5 | | | $ | 587.6 | | | -12 | % | | — | % |
| Hot Wheels | 521.1 | | | 492.3 | | | 6 | % | | — | % |
| Fisher-Price (a) | 300.6 | | | 285.9 | | | 5 | % | | — | % |
| Other | 998.4 | | | 1,023.5 | | | -2 | % | | — | % |
| Gross Billings | $ | 2,337.6 | | | $ | 2,389.3 | | | -2 | % | | — | % |
(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products. Prior period amounts have been reclassified to conform to the current presentation.
Gross billings for the North America segment were $2.34 billion in the first nine months of 2024, a decrease of $51.8 million, or 2%, as compared to $2.39 billion in the first nine months of 2023. 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 Vehicles and Action Figures, Building Sets, Games, and Other products.
Dolls gross billings decreased 9%, of which 8% was due to lower billings of Barbie, which benefited from the Barbie movie in the prior year, and 2% was due to lower billings of Disney Princess and Disney Frozen products.
Infant, Toddler, and Preschool gross billings decreased 4%, of which 5% was due to lower billings of Baby Gear and Power Wheels products and 2% was due to lower billings of Preschool Entertainment products, partially offset by higher billings of Fisher-Price products of 3%.
Vehicles gross billings increased 5%, primarily due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 5%, of which 6% was due to higher billings of Games products and 3% was due to higher billings of Action Figures products, partially offset by lower billings of Building Sets products of 2% and lower billings of Other products of 2%.
Sales adjustments decreased to $145.0 million in the first nine months of 2024 from $147.4 million in the first nine months of 2023, primarily due to lower gross billings. Sales adjustments as a percentage of net sales were flat at 6.6% for the first nine months of each of 2024 and 2023.
Cost of sales decreased by $103.3 million, or 8%, to $1.11 billion in the first nine months of 2024 from $1.22 billion in the first nine months of 2023, primarily due to a decrease in product and other costs of $96.1 million.
Gross margin in the first nine months of 2024 increased to 49.3% from 45.8% in the first nine months of 2023, primarily due to supply chain and other efficiencies of 240 basis points, cost deflation of 120 basis points, and incremental realized savings from the OPG program of 90 basis points, partially offset by unfavorable mix of 100 basis points.
North America segment operating income increased by $56.8 million to $622.3 million in the first nine months of 2024, as compared to $565.6 million in the first nine months of 2023, due to higher gross profit of $53.9 million and lower advertising and promotion expenses of $23.3 million, partially offset by higher other selling and administrative expenses of $20.4 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 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| | (In millions, except percentage information) |
| Net Sales | $ | 1,540.6 | | | $ | 1,578.6 | | | -2 | % | | -1 | % |
| Segment Operating Income | 304.3 | | | 245.8 | | | 24 | % | | |
Net sales for the International segment in the first nine months of 2024 were $1.54 billion, a decrease of $38.0 million, or 2%, as compared to $1.58 billion in the first nine months 2023. The decrease in net sales was due to a decrease in gross billings of $57.5 million, partially offset by a decrease in sales adjustments of $19.4 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended | | % Change as
Reported | | Currency
Exchange Rate
Impact |
| September 30,
2024 | | September 30,
2023 | |
| | (In millions, except percentage information) |
| Gross Billings by Categories | | | | | | | |
| Dolls | $ | 627.5 | | | $ | 712.0 | | | -12 | % | | -1 | % |
| Infant, Toddler, and Preschool | 255.0 | | | 270.9 | | | -6 | % | | -1 | % |
| Vehicles | 641.9 | | | 586.8 | | | 9 | % | | -1 | % |
| Action Figures, Building Sets, Games, and Other | 289.4 | | | 301.7 | | | -4 | % | | -1 | % |
| Gross Billings | $ | 1,813.8 | | | $ | 1,871.3 | | | -3 | % | | -1 | % |
| | | | | | | |
| Supplemental Gross Billings Disclosure | | | | | | | |
| Gross Billings by Top 3 Power Brands | | | | | | | |
| Barbie | $ | 426.6 | | | $ | 477.1 | | | -11 | % | | -1 | % |
| Hot Wheels | 572.6 | | | 522.6 | | | 10 | % | | -1 | % |
| Fisher-Price (a) | 194.1 | | | 194.7 | | | — | % | | -1 | % |
| Other | 620.5 | | | 676.9 | | | -8 | % | | -1 | % |
| Gross Billings | $ | 1,813.8 | | | $ | 1,871.3 | | | -3 | % | | -1 | % |
(a) Beginning in the first quarter of 2024, the Fisher-Price power brand was revised to exclude Baby Gear and Imaginext products. Prior period amounts have been reclassified to conform to the current presentation.
Gross billings for the International segment were $1.81 billion in the first nine months of 2024, a decrease of $57.5 million, or 3%, as compared to $1.87 billion in the first nine months of 2023, with an unfavorable impact from changes in currency exchange rates of one percentage point. The decrease in gross billings was due to lower billings of Dolls, Infant, Toddler, and Preschool, and Action Figures, Building Sets, Games, and Other products, partially offset by higher billings of Vehicles products.
Dolls gross billings decreased 12%, of which 7% was due to lower billings of Barbie, which benefited from the Barbie movie in the prior year, and 3% was due to lower billings of Disney Princess and Disney Frozen products.
Infant, Toddler, and Preschool gross billings decreased 6%, of which 3% was due to lower billings of Baby Gear and Power Wheels products and 3% was due to lower billings of Preschool Entertainment products.
Vehicles gross billings increased 9%, primarily due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings decreased 4%, of which 6% was due to lower billings of Action Figures products, 3% was due to lower billings of Other products, and 2% was due to lower billings of Building Sets products, partially offset by higher billings of Games products of 7%.
Sales adjustments decreased to $273.2 million in the first nine months of 2024 from $292.7 million in the first nine months of 2023. Sales adjustments as a percentage of net sales decreased to 17.7% for the first nine months of 2024, as compared to 18.5% for the first nine months of 2023. The decrease in sales adjustments as a percentage of net sales was primarily due to $15.9 million of net foreign currency transaction losses from the remeasurement of certain accounts receivable denominated in foreign currencies in the first nine months of 2023.
Cost of sales decreased by $78.6 million, or 9%, to $787.5 million in the first nine months of 2024 from $866.1 million in the first nine months of 2023, primarily due to a decrease in product and other costs of $74.3 million.
Gross margin increased to 48.9% in the first nine months of 2024 from 45.1% in the first nine months of 2023, primarily due to supply chain and other efficiencies of 300 basis points, incremental realized savings from the OPG program of 110 basis points, and cost deflation of 70 basis points, partially offset by unfavorable mix of 100 basis points.
International segment operating income increased by $58.5 million to $304.3 million in the first nine months of 2024, as compared to $245.8 million in the first nine months of 2023, primarily due to higher gross profit of $40.6 million and lower advertising and promotion expenses of $16.9 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 70% is expected to benefit cost of sales and 30% is expected to benefit other selling and administrative expenses. Total expected cash expenditures under the OPG program are expected to be between $130 and $165 million 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: | | | | | |
| Optimizing for Profitable Growth – Actions | Estimate of Cost |
| Employee severance | $90 to $105 million |
| Other restructuring costs | $10 to $20 million |
| Non-cash charges | up to $5 million |
| Total estimated severance and other restructuring costs (a) | $100 to $130 million |
| Investments | $30 to $40 million |
| Total estimated actions | $130 to $170 million |
In connection with the OPG program, Mattel recorded severance and other restructuring costs in the following cost and expense categories within operating income in the consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30,
2024 | | September 30,
2023 | | September 30,
2024 | | September 30,
2023 |
| (In millions) |
| Cost of sales (a) | $ | 0.4 | | | $ | — | | | $ | 3.0 | | | $ | — | |
| Other selling and administrative expenses (b) | 26.8 | | | 25.3 | | | 44.7 | | | 25.3 | |
| $ | 27.2 | | | $ | 25.3 | | | $ | 47.7 | | | $ | 25.3 | |
(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, 2024, Mattel has recorded cumulative severance and other restructuring charges related to the OPG program of approximately $73 million, which includes approximately $1 million of non-cash charges. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $60 million, which represents approximately 60% benefit to cost of sales, and 40% benefit to other selling and administrative expenses, as of September 30, 2024, in connection with the OPG Program.
Other Cost Savings Actions
As of December 31, 2023, Mattel concluded the OFG program, a multi-year cost savings program that had integrated and expanded upon the previous Capital Light program. The OFG program, excluding previous actions taken under the Capital Light program, realized gross annual cost savings of approximately $343 million upon conclusion of the program. In connection with the OFG program, Mattel recorded severance and other restructuring charges of $3.1 million and $31.6 million within other selling and administrative expenses during the three and nine months ended September 30, 2023, respectively, and a credit to severance and other restructuring charges of ($0.1) million and ($1.3) million within cost of sales during the three and nine months ended September 30, 2023, respectively, in the consolidated statement of operations.
Additionally, during the three and nine months ended September 30, 2023, Mattel executed actions to further streamline its organizational structure that were not included in the OFG program. In connection with these actions, Mattel recorded severance charges of $0.9 million and $6.1 million within other selling and administrative expenses during the three and nine months ended September 30, 2023, respectively, in the consolidated statement of operations.
Liquidity and Capital Resources
Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, short-term borrowing facilities, including its $1.40 billion New Revolving Credit Facility, which on July 15, 2024 replaced the $1.40 billion Prior Revolving Credit Facility, and access to capital markets to fund its operations and obligations. Such obligations may include capital expenditures, debt service, future royalty payments pursuant to licensing agreements, future inventory and service purchases, and required cash contributions and payments related to benefit plans. Of Mattel's $723.5 million in cash and equivalents at September 30, 2024, $499.4 million was held by foreign subsidiaries, including $59.1 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 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 New Revolving Credit Facility covenants, or deterioration of Mattel's credit ratings. However, based on Mattel's current business plan and factors known to date, it is expected that existing cash and equivalents, cash flows from operations, availability under the New Revolving Credit Facility, and access to capital markets will be sufficient to meet working capital and operating expenditure requirements for the next twelve months and in the long-term.
Current Market Conditions
Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates.
Mattel intends to utilize its existing cash and cash equivalents, cash flow from operations, and borrowings under the New Revolving Credit Facility to meet its short-term liquidity needs. At September 30, 2024, Mattel had no outstanding borrowings under the New Revolving Credit Facility and approximately $9 million in outstanding letters of credit under the New Revolving Credit Facility.
Market conditions could affect certain terms of other debt instruments that Mattel enters into from time to time.
Mattel monitors the third-party depository institutions that hold Mattel's cash and equivalents. Mattel's emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks.
Mattel is subject to credit risks relating to the ability of its counterparties in hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and nonperformance have been considered in the fair value measurements of Mattel's foreign currency forward exchange contracts. Mattel closely monitors its counterparties and takes action, as necessary, to manage its counterparty credit risk.
Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity required to buy inventory or raw materials. Mattel monitors its customers' financial condition and their liquidity in order to mitigate accounts receivable collectability risks, and customer terms and credit limits are adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to 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 $61.6 million in the first nine months of 2024, as compared to $79.6 million in the first nine months of 2023. The change was primarily due to an increase in net income, excluding the impact of non-cash items, partially offset by an increase in cash used for working capital of $113.1 million.
Cash flows used for investing activities were $151.7 million in the first nine months of 2024, as compared to $93.9 million in the first nine months of 2023. The change was primarily due to higher capital expenditures of $39.4 million, due to the purchase of an office building for approximately $59 million in July 2024, and lower proceeds from foreign currency forward exchange contracts of $18.4 million in the first nine months of 2024.
Cash flows used for financing activities were $314.2 million in the first nine months of 2024, as compared to $119.5 million in the first nine months of 2023. The change was primarily due to $158.4 million of higher share repurchases in the first nine months of 2024 as compared to the first nine months of 2023.
Seasonal Financing
See Part I, Item 1 "Financial Statements—Note 8 to the Consolidated Financial Statements—Seasonal Financing" of this Quarterly Report on Form 10-Q.
Financial Position
Mattel's cash and equivalents decreased $537.8 million to $723.5 million at September 30, 2024 from $1.26 billion at December 31, 2023, primarily due to share repurchases of $268.3 million, capital expenditures of $156.9 million, and cash flows used for operating activities of $61.6 million during the nine months ended September 30, 2024. Mattel's cash and equivalents increased $267.8 million to $723.5 million at September 30, 2024 from $455.7 million at September 30, 2023, primarily due to cash flows generated from operating activities of $887.8 million during the trailing twelve months, partially offset by $361.5 million of share repurchases and $199.7 million of capital expenditures during the trailing twelve months.
Accounts receivable increased $395.5 million to $1.48 billion at September 30, 2024 from $1.08 billion at December 31, 2023, primarily due to the seasonality of Mattel's business. Accounts receivable decreased by $93.7 million to $1.48 billion at September 30, 2024 from $1.57 billion at September 30, 2023, primarily due to lower sales in the third quarter of 2024 as compared to the third quarter of 2023.
Inventories increased $165.6 million to $737.2 million at September 30, 2024 from $571.6 million at December 31, 2023, primarily due to seasonal inventory build. Inventories decreased $53.3 million to $737.2 million at September 30, 2024 from $790.5 million at September 30, 2023, primarily due to continued inventory management efforts.
Prepaid expenses and other current assets increased $34.8 million to $242.3 million at September 30, 2024 from $207.5 million at December 31, 2023, which included increases in prepaid royalties of $13.2 million, other current assets of $13.0 million and prepaid value added taxes of $11.2 million. Prepaid expenses and other current assets increased $17.5 million to $242.3 million at September 30, 2024 from $224.8 million at September 30, 2023, which included increases in prepaid royalties of $14.2 million and other current assets of $13.4 million, partially offset by a decrease in derivative receivables of $10.4 million.
Accounts payable and accrued liabilities decreased $66.2 million to $1.24 billion at September 30, 2024 from $1.31 billion at December 31, 2023, due to seasonal declines in expenditure levels and the timing of incentive compensation payments. Accounts payable and accrued liabilities were $1.24 billion at September 30, 2024, relatively flat as compared to $1.25 billion at September 30, 2023.
A summary of Mattel's capitalization is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | September 30, 2023 | | December 31, 2023 |
| | (In millions, except percentage information) |
| Cash and equivalents | $ | 723.5 | | | | | $ | 455.7 | | | | | $ | 1,261.4 | | | |
| | | | | | | | | | | |
| | | | | |
| 2010 Senior Notes due October 2040 | 250.0 | | | | | 250.0 | | | | | 250.0 | | | |
| 2011 Senior Notes due November 2041 | 300.0 | | | | | 300.0 | | | | | 300.0 | | | |
| | | | | |
| 2019 Senior Notes due December 2027 | 600.0 | | | | | 600.0 | | | | | 600.0 | | | |
| 2021 Senior Notes due April 2026 | 600.0 | | | | | 600.0 | | | | | 600.0 | | | |
| 2021 Senior Notes due April 2029 | 600.0 | | | | | 600.0 | | | | | 600.0 | | | |
| Debt issuance costs and debt discount | (16.7) | | | | | (21.1) | | | | | (20.0) | | | |
| Total debt | 2,333.3 | | | 50 | % | | 2,328.9 | | | 53 | % | | 2,330.0 | | | 52 | % |
| Stockholders' equity | 2,312.9 | | | 50 | | | 2,035.5 | | | 47 | | | 2,149.2 | | | 48 | |
| Total capitalization (debt plus equity) | $ | 4,646.2 | | | 100 | % | | $ | 4,364.4 | | | 100 | % | | $ | 4,479.2 | | | 100 | % |
Total debt was $2.33 billion at each of September 30, 2024, December 31, 2023 and September 30, 2023, respectively.
Stockholders' equity increased $163.7 million to $2.31 billion at September 30, 2024 from $2.15 billion at December 31, 2023, primarily due to net income of $401.0 million and the net effect of share-based compensation and the related issuance of treasury stock of $44.1 million, partially offset by share repurchases of $268.3 million during the first nine months of 2024. Stockholders' equity increased $277.5 million to $2.31 billion at September 30, 2024 from $2.04 billion at September 30, 2023, primarily due to net income of $548.3 million and the net effect of share-based compensation and the related issuance of treasury stock of $74.5 million during the trailing twelve months, partially offset by share repurchases of $361.5 million during the trailing twelve months.
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 2023 Annual Report on Form 10-K and did not materially change during the first nine months of 2024.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Rate Risk
Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. The Euro, Chinese yuan, and Mexican peso were the primary currencies that caused foreign currency transaction exposure for Mattel during the first nine months of 2024. 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 (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 nine months ended September 30, 2024 were related to its net investments in entities having functional currencies denominated in the Mexican peso, British pound sterling and Brazilian real.
There are numerous factors impacting the amount by which Mattel's financial results are affected by foreign currency translation and transaction gains and losses resulting from changes in currency exchange rates, including, but not limited to, the level of foreign currency forward exchange contracts in place at a given time and the volume of foreign currency-denominated transactions in a given period. However, assuming that such factors were held constant, Mattel estimates that a one percent change in the U.S. dollar would have impacted Mattel's third quarter net sales by approximately 0.3% and would have less than a $0.01 impact to Mattel's net income per share.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, Mattel's disclosure controls and procedures were evaluated, with the participation of Mattel's principal executive officer and principal financial officer, to assess whether they are effective in providing reasonable assurance that information required to be disclosed by Mattel in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, Ynon Kreiz, Mattel's principal executive officer, and Anthony DiSilvestro, Mattel's principal financial officer, concluded that these disclosure controls and procedures are not effective as of September 30, 2024 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 2023 Annual Report on Form 10-K.
Remediation Plan
Management is in the process of implementing its remediation plan to address the material weakness, which includes the adoption of new program change management controls, and the design of new user access provisioning and review controls. During the quarter ended September 30, 2024, management implemented newly designed program change management controls. Additional time is required to test the operating effectiveness of these controls and to complete the design, implementation, and testing of the user access provisioning and review 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
Except as described above, there were no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, Mattel's internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The content of Part I, Item 1 "Financial Statements—Note 20 to the Consolidated Financial Statements—Contingencies" of this Quarterly Report on Form 10-Q is hereby incorporated by reference in its entirety in this Item 1.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in the 2023 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity Securities
During the third quarter of 2024, Mattel did not sell any unregistered equity securities.
Issuer Purchases of Equity Securities
The following table provides certain information with respect to Mattel's purchases of its common stock during the third quarter of 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of
Shares
Purchased (a) | | Average Price Paid
per Share | | Total Number of Shares
Purchased as
Part of Publicly
Announced Plans or
Programs | | Approximate Dollar
Value of Shares that May Yet Be Purchased Under the Plans or Programs (b) |
| July 1-31 | 5,677 | | | $ | 19.28 | | | — | | | $ | 800,014,073 | |
| August 1-31 | 3,733,131 | | | 19.10 | | | 3,574,595 | | | 731,693,173 | |
| September 1-30 | 53,845 | | | 19.04 | | | — | | | 731,693,173 | |
| Total | 3,792,653 | | | $ | 19.10 | | | 3,574,595 | | | $ | 731,693,173 | |
____________________________________
(a)The total number of shares purchased includes 218,058 shares withheld from employees to satisfy minimum tax withholding obligations that occur upon settlement of equity awards, which were not purchased as part of a publicly announced repurchase plan or program.
(b)On February 5, 2024, the Board of Directors authorized a $1.00 billion share repurchase program. As of September 30, 2024, Mattel had a remaining authorization of $731.7 million under the program. Repurchases under the share repurchase program will take place from time to time, depending on market conditions. Mattel's share repurchase program has no expiration date.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
(a)None.
(b)Not applicable.
(c).
Item 6. Exhibits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Incorporated by Reference |
| Exhibit No. | | Exhibit Description | | Form | | File No. | | Exhibit(s) | | Filing Date |
| | Restated Certificate of Incorporation of Mattel, Inc. | | 8-K | | 001-05647 | | 99.0 | | May 21, 2007 |
| | Amended and Restated Bylaws of Mattel, Inc. | | 8-K | | 001-05647 | | 3.1 | | September 15, 2023 |
| | Specimen Stock Certificate with respect to Mattel, Inc. | | 10-Q | | 001-05647 | | 4.0 | | August 3, 2007 |
| | Revolving Credit Agreement, dated as of July 15, 2024, among Mattel, as the borrower, Bank of America, N.A., as administrative agent, and the other lenders and financial institutions party thereto | | 8-K | | 001-05647 | | 10.1 | | July 16, 2024 |
| | Form of Grant Agreement for Performance-Based Restricted Stock Units for Ynon Kreiz under the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan | | 8-K | | 001-05647 | | 10.1 | | September 13, 2024 |
| | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
101.INS* | | Inline XBRL Instance Document | | | | | | | | |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
104* | | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL. | | | | | | | | |
______________________________________________
| | | | | |
| + | Management contract or compensatory plan or arrangement. |
| * | Filed herewith. |
| ** | Furnished herewith. This exhibit should not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| MATTEL, INC. Registrant |
| | | |
| By: | | /s/ Yoon Hugh |
| | | Yoon Hugh
Senior Vice President and Corporate Controller (Duly Authorized Officer and Chief Accounting Officer) |
Date: October 29, 2024
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