MATTEL, INC. 
In the discussion that follows, "Mattel" refers toMattel, Inc. and/or one or more of its family of companies. The following discussion should be read in conjunction with the consolidated financial statements and 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 comparable only with corresponding periods. The following discussion also includes gross sales and currency exchange rate impact, non-GAAP financial measures within the meaning of Regulation G promulgated by theSecurities and Exchange Commission ("Regulation G"), to supplement the financial results as reported in accordance with generally accepted accounting principles ("GAAP"). Gross sales represent sales to customers at invoice, excluding the impact of sales adjustments, such as trade discounts and other allowances. 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 these non-GAAP financial measures 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 non-GAAP financial measures provides useful supplemental information to investors to allow them to better evaluate ongoing business performance and certain components of Mattel's results. These measures are not, and should not be viewed as, a substitute for GAAP financial measures. Refer to "Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q for a more detailed discussion, including a reconciliation of gross sales, a non-GAAP financial measure, to net sales, its most directly comparable GAAP financial measure. Note that amounts shown in millions within Item 2 may not foot due to rounding. Overview Mattel is a leading global toy company and owner of one of the strongest catalogs of children's and family entertainment franchises in the world, creating innovative products and experiences that inspire, entertain and develop children through play. Mattel is focused on the following two-part strategy to transform Mattel from a toy manufacturing company into an intellectual property ("IP") driven, high-performing toy company: •In the short- to mid-term, restore profitability by reshaping operations and regain topline growth by growing Mattel's Power Brands and expanding Mattel's brand portfolio. •In the mid- to long-term, capture the full value of Mattel's IP through franchise management and the development of Mattel's online retail and e-commerce capabilities. Mattel engages consumers through its portfolio of iconic brands, as well as other popular intellectual properties that we own or license in partnership with global entertainment companies. Mattel's portfolio of owned and licensed brands and products are organized into the following categories: Dolls-including brands such as Barbie, American Girl, Enchantimals, and Polly Pocket. Empowering girls since 1959, Barbie has inspired the limitless potential of every girl by showing them that they can be anything. With an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products, Barbie is the premier fashion doll for children around the world. American Girl is best known for imparting valuable life lessons through its inspiring dolls and books, featuring diverse characters from past and present. Its products are sold directly to consumers via its catalog, website, and proprietary retail stores. Infant, Toddler, and Preschool-including brands such as Fisher-Price, Thomas & Friends, Power Wheels, Fireman Sam, and Shimmer and Shine (Nickelodeon). As a leader in play and child development, Fisher-Price's mission is to provide meaningful solutions for parents and enrich children's lives from birth to school readiness, helping families get the best possible start. Thomas & Friends is an award-winning preschool train brand franchise that brings meaningful life lessons of friendship and teamwork to kids through content, toys, live events, and other lifestyle categories. Vehicles-including brands such as Hot Wheels, Matchbox, CARS (Disney Pixar), andJurassic World (NBCUniversal). In production for over 50 years, Hot Wheels continues to push the limits of performance and design and ignites the challenger spirit of kids, adults, and collectors. From diecast cars, to tracks, playsets, and advanced play products, the Hot Wheels portfolio has broad appeal that engages and excites kids.
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Action Figures,Building Sets , Games, and Other-including brands such as MEGA, UNO, Toy Story (Disney Pixar),Jurassic World (NBCUniversal), WWE, and Star Wars (Disney ). From big blocks to small bricks, first builders to advanced collectors, MEGA creates products that spark purposeful play and encourage kids and adults to "build beyond." America's number one game, UNO is the classic matching card game that is easy to pick up and fast fun for everyone. Mattel's operating segments are: (i)North America , which consists of theU.S. andCanada ; (ii) International; and (iii) American Girl. TheNorth America and International segments sell products across categories, although some products are developed and adapted for particular international markets. COVID-19 Update A novel strain of coronavirus disease ("COVID-19") was reported inDecember 2019 and characterized as a pandemic by theWorld Health Organization inMarch 2020 . The impact of COVID-19 and the actions taken by governments, businesses, and individuals in response to it have resulted in significant global economic disruption, including, but not limited to, temporary business closures, reduced retail traffic, volatility in financial markets, and restrictions on travel. The negative impact of retail disruptions and closures resulting from COVID-19 abated during the third quarter of 2020, with substantially all retail outlets selling Mattel's products open exiting the third quarter. Strong consumer demand for toys during the third quarter contributed to double digit year-over-year increases in net sales in theNorth America and EMEA regions. Toy consumer demand improved throughout the third quarter in the APAC andLatin America regions as retail doors continued to open, contributing to an improved year-over-year net sales performance in the third quarter as compared to the first half of 2020. American Girl retail stores were negatively impacted by retail disruption and the permanent closure of certain retail stores in 2020. This was substantially offset by higher direct-to-consumer channel sales, which doubled during the third quarter of 2020, resulting in a slight decrease in year-over-year net sales for the American Girl segment. Mid-single digit growth is expected for fourth quarter gross sales year-over-year, although there may be challenges with meeting strong product demand. Further, if the pandemic worsens, there may be an adverse impact on net sales, profitability, and working capital which may be materially greater than Mattel's current estimates. Mattel's manufacturing and distribution network was fully operational as ofSeptember 30, 2020 . To the extent COVID-19 causes manufacturing and distribution disruption, particularly during seasonally-high periods of distribution during the fourth quarter of 2020, Mattel's ability to meet demand may be materially impacted. Due to the uncertainty of the duration and severity of the pandemic and resulting effects, it is not possible to estimate the extent of such impact. Prolonged disruption to Mattel's customers, supply chain, or other critical operations would result in material adverse effects to Mattel's business and its liquidity. The ultimate impact of COVID-19 on Mattel's results of operations, financial position, and cash flows remains uncertain at this time due to rapidly evolving circumstances. Mattel is closely monitoring the situation and actively managing its business as developments occur. Refer to Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q for further discussion regarding potential impacts of COVID-19 on Mattel's business. The specific line items that have been materially affected by these impacts of COVID-19 are noted within "Results ofOperations-Third Quarter " and "Results of Operations-First Nine Months" below. Additional discussion of the impact of COVID-19 on Mattel's liquidity and capital resources is discussed in "Liquidity and Capital Resources" and in "Cost Savings Programs" below. In addition to the impacts of COVID-19 discussed below, it is reasonably likely that the pandemic and its resulting effects could have other unforeseen consequences that affect Mattel's business. Cybersecurity Update OnJuly 28, 2020 , Mattel discovered that it was the victim of a ransomware attack on its information technology systems that caused data on a number of systems to be encrypted. Promptly upon detection of the attack, Mattel began enacting its response protocols and taking a series of measures to stop the attack and restore impacted systems. Mattel contained the attack and, although some business functions were temporarily impacted, Mattel restored its operations. A forensic investigation of the incident has concluded, and no exfiltration of any sensitive business data or retail customer, supplier, consumer, or employee data was identified. There has been no material impact to Mattel's operations or financial condition as a result of the incident.
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Results ofOperations-Third Quarter Consolidated Results Net sales for the third quarter of 2020 were$1.63 billion , a 10% increase, as compared to$1.48 billion in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. Net income for the third quarter of 2020 was$316.0 million , or$0.91 per share, as compared to net income of$70.6 million , or$0.20 per share, in the third quarter of 2019, due to higher gross profit in theNorth America and International segments and lower advertising and promotion expenses. The following table provides a summary of Mattel's consolidated results for the third quarter of 2020 and 2019: For the Three Months Ended September 30, 2020 September 30, 2019 Year/Year Change % of Net % of Net Basis Points of Amount Sales Amount Sales % Net Sales (In millions, except percentage and basis point information) Net sales$ 1,631.7 100.0 %$ 1,481.6 100.0 % 10 % - Gross profit$ 832.4 51.0 %$ 686.4 46.3 % 21 % 470 Advertising and promotion expenses 102.5 6.3 % 170.4 11.5 % -40 % -520 Other selling and administrative expenses 345.7 21.2 % 366.0 24.7 % -6 % -350 Operating income 384.2 23.5 % 150.1 10.1 % 156 % 1,340 Interest expense 50.4 3.1 % 47.7 3.2 % 6 % -10 Interest (income) (0.5) - % (0.8) -0.1 % -45 % 10 Other non-operating (income) expense, net (3.9) 1.3 Income before income taxes 338.1 20.7 % 102.0 6.9 % 232 % 1,380 Provision for income taxes 22.1 31.4 Net Income$ 316.0 19.4 %$ 70.6 4.8 % 348 % 1,460 32
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Sales
Net sales for the third quarter of 2020 were$1.63 billion , an increase of$150.1 million or 10%, as compared to$1.48 billion in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. The following table provides a summary of Mattel's consolidated gross sales by categories, along with supplemental information by brand, for the third quarter of 2020 and 2019: For the Three Months Ended Currency September 30, September 30, % Change as Exchange Rate 2020 2019 Reported Impact (In millions, except percentage information) Gross Sales by Categories Dolls$ 690.5 $ 567.6 22 % -2 % Infant, Toddler, and Preschool 404.1 431.0 -6 % -1 % Vehicles 369.4 346.9 6 % -2 % Action Figures,Building Sets , Games, and Other 354.5 311.4 14 % - % Gross Sales$ 1,818.4 $ 1,656.9 10 % -1 % Sales Adjustments (186.7) (175.4) Net Sales$ 1,631.7 $ 1,481.6 10 % -1 %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands Barbie$ 532.2 $ 412.8 29 % -1 % Hot Wheels 312.8 293.3 7 % -2 % Fisher-Price and Thomas & Friends 387.6 396.3 -2 % -1 % Other 585.7 554.4 6 % -1 % Gross Sales$ 1,818.4 $ 1,656.9 10 % -1 % Gross sales were$1.82 billion in the third quarter of 2020, an increase of$161.5 million or 10%, as compared to$1.66 billion in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. The increase in third quarter of 2020 gross sales was primarily due to higher sales of Dolls and Action Figures,Building Sets , Games, and Other. Of the 22% increase in Dolls gross sales, 21% was due to higher sales of Barbie products, primarily driven by positive brand momentum and point of sale demand ("POS"). Of the 6% decrease in Infant, Toddler, and Preschool gross sales, 3% was due to lower sales ofFisher-Price Friends products and 2% was due to lower sales of Fisher-Price and Thomas & Friends products. Of the 6% increase in Vehicles gross sales, 5% was due to higher sales of Hot Wheels products. Of the 14% increase in Action Figures,Building Sets , Games, and Other gross sales; 10% was due to initial sales of Star Wars: The Child plush products; 7% was due to higher sales of card game products, including UNO; 6% was due to higher sales ofJurassic World products; and 4% was due to higher sales of family games products, including Pictionary and Scrabble. This was partially offset by lower sales of Toy Story 4 products of 16% following its 2019 theatrical release. Cost of Sales Cost of sales as a percentage of net sales was 49.0% in the third quarter of 2020, as compared to 53.7% in the third quarter of 2019. Cost of sales increased by$4.2 million , or 1%, to$799.3 million in the third quarter of 2020 from$795.1 million in the third quarter of 2019, as compared to a 10% increase in net sales. Within cost of sales, product and other costs increased by$7.1 million , or 1%, to$666.3 million in the third quarter of 2020 from$659.1 million in the third quarter of 2019; freight and logistics expenses increased by$10.6 million , or 16%, to$77.0 million in the third quarter of 2020 from$66.4 million in the third quarter of 2019; and royalty expense decreased by$13.6 million , or 20%, to$56.0 million in the third quarter of 2020 from$69.6 million in the third quarter of 2019. Within cost of sales, certain inbound freight costs were previously classified as freight and logistics expenses. Mattel reclassified such inbound freight costs from freight and logistics expenses to present all inbound freight costs within product and other costs for the periods and segments presented.
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Gross Margin Gross margin increased to 51.0% in the third quarter of 2020 from 46.3% in the third quarter of 2019. The increase in gross margin was primarily driven by incremental realized savings from the Structural Simplification and Capital Light programs (the "cost savings programs"), a decrease in royalty expense resulting from lower sales of licensed products, and favorable product mix. Advertising and Promotion Expenses Advertising and promotion expenses primarily consist of: (i) media costs, which primarily include the media, planning, and buying fees for television, print, and online advertisements; (ii) non-media costs, which primarily include commercial and website production, merchandising, and promotional costs; (iii) retail advertising costs, which primarily include consumer direct catalogs, newspaper inserts, fliers, and mailers; and (iv) generic advertising costs, which primarily include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to 6.3% in the third quarter of 2020 from 11.5% in the third quarter of 2019 primarily as a result of a reduction and deferral of 2020 advertising and promotion spend to the fourth quarter to increase support for Mattel's products during the holiday shopping season. Other Selling and Administrative Expenses Other selling and administrative expenses were$345.7 million , or 21.2% of net sales, in the third quarter of 2020, as compared to$366.0 million , or 24.7% of net sales, in the third quarter of 2019. The decrease in other selling and administrative expenses was primarily driven by incremental realized savings from the cost savings programs and lower employee-related costs, due to the further actions taken to streamline Mattel's organizational structure. Interest expense Interest expense was$50.4 million in the third quarter of 2020, as compared to$47.7 million in the third quarter of 2019. The increase in interest expense was due to the higher interest rate associated with the refinancing of both the 2010 Senior Notes dueOctober 2020 and the 2016 Senior Notes dueAugust 2021 with the 2019 Senior Notes dueDecember 2027 . Provision for Income Taxes Mattel's provision for income taxes was$22.1 million and$31.4 million for the third quarter of 2020 and 2019, respectively. For the third quarter of 2020, Mattel recognized a net discrete tax expense of$1.7 million , primarily related to an expense for reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. For the three months endedSeptember 30, 2019 , Mattel recognized discrete tax expense of$13.5 million related to reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions, offset by a$13.4 million tax benefit related to the reassessment of the future realizability of certain foreign deferred tax assets. As a result of the establishment of a valuation allowance onU.S. deferred tax assets, there was noU.S. tax benefit provided forU.S. losses during the third quarter of 2020 and 2019.
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Segment Results North America Segment The following table provides a summary of Mattel's net sales, segment income, and gross sales by categories, along with supplemental information by brand, for theNorth America segment for the third quarter of 2020 and 2019: For the Three Months Ended Currency September 30, September 30, % Change as Exchange Rate 2020 2019 Reported Impact (In millions, except percentage information) Net Sales$ 924.7 $ 821.9 13 % - % Segment Income 344.4 194.4 77 % Gross Sales by Categories Dolls$ 328.6 $ 250.6 31 % - % Infant, Toddler, and Preschool 255.3 274.6 -7 % - % Vehicles 189.6 170.8 11 % - % Action Figures,Building Sets , Games, and Other 218.1 184.4 18 % - % Gross Sales$ 991.6 $ 880.4 13 % - % Sales Adjustments (66.9) (58.6) Net Sales$ 924.7 $ 821.9 13 % - %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands Barbie$ 297.6 $ 221.2 35 % - % Hot Wheels 156.5 140.8 11 % - % Fisher-Price and Thomas & Friends 241.6 250.9 -4 % - % Other 295.9 267.5 11 % - % Gross Sales$ 991.6 $ 880.4 13 % - % Gross sales for theNorth America segment were$991.6 million in the third quarter of 2020, an increase of$111.2 million , or 13%, as compared to$880.4 million in the third quarter of 2019. The increase in theNorth America segment gross sales was primarily due to higher sales of Dolls. Of the 31% increase in Dolls gross sales, 30% was due to higher sales of Barbie products, primarily driven by positive brand momentum and POS. Of the 7% decrease in Infant, Toddler, and Preschool gross sales, 3% was due to lower sales ofFisher-Price Friends products and 3% was due to lower sales of Fisher-Price and Thomas & Friends products. Of the 11% increase in Vehicles gross sales, 9% was due to higher sales of Hot Wheels products and 2% was due to higher sales of CARS products. Of the 18% increase in Action Figures,Building Sets , Games, and Other gross sales, 14% was due to initial sales of Star Wars: The Child plush products; 6% was due to higher sales of card game products, including UNO; 6% was due to higher sales ofJurassic World products; and 2% was due to higher sales of family games products, including Pictionary. This was partially offset by lower sales of Toy Story 4 products of 14% following its 2019 theatrical release. Cost of sales increased 1% in the third quarter of 2020, as compared to a 13% increase in net sales, primarily due to higher freight and logistics expenses, partially offset by lower royalty expense. Gross margin in the third quarter of 2020 increased primarily due to incremental realized savings from the cost savings programs and lower royalty expense.North America segment income was$344.4 million in the third quarter of 2020, as compared to segment income of$194.4 million in the third quarter of 2019; the increase was primarily due to higher gross profit and lower advertising and promotion expenses.
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International Segment
The following table provides a summary of Mattel's net sales, segment income,
and gross sales by categories, along with supplemental information by brand, for
the International segment for the third quarter of 2020 and 2019:
For the Three Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2020 2019 Reported Impact
(In millions, except percentage information)
Net Sales $ 655.5 $ 607.9 8 % -3 %
Segment Income 183.2 89.2 105 %
Gross Sales by Categories
Dolls $ 308.2 $ 262.2 18 % -4 %
Infant, Toddler, and Preschool 148.7 156.4 -5 % -2 %
Vehicles 179.8 176.2 2 % -4 %
Action Figures, Building Sets , Games,
and Other 136.4 127.0 7 % -2 %
Gross Sales $ 773.1 $ 721.7 7 % -3 %
Sales Adjustments (117.5) (113.8)
Net Sales $ 655.5 $ 607.9 8 % -3 %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands Barbie$ 234.6 $ 191.6 22 % -4 % Hot Wheels 156.3 152.5 3 % -4 % Fisher-Price and Thomas & Friends 146.1 145.4 - % -3 % Other 236.1 232.1 2 % -2 % Gross Sales$ 773.1 $ 721.7 7 % -3 % Gross sales for the International segment were$773.1 million in the third quarter of 2020, an increase of$51.4 million , or 7%, as compared to$721.7 million in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 3 percentage points. The increase in the International segment gross sales was primarily due to higher sales of Dolls. Of the 18% increase in Dolls gross sales, 17% was due to higher sales of Barbie products, primarily driven by positive brand momentum and POS. Of the 5% decrease in Infant, Toddler, and Preschool gross sales, 3% was due to lower sales ofFisher-Price Friends products, primarily driven by the exiting of certain licensing partnerships. Of the 2% increase in Vehicles gross sales, 2% was due to higher sales of Hot Wheels products. Of the 7% increase in Action Figures,Building Sets , Games, and Other gross sales; 7% was due to higher sales of card game products, including UNO; 7% was due to higher sales of family games products, including Pictionary and Scrabble; and 6% was due to higher sales ofJurassic World products. This was partially offset by lower sales of Toy Story 4 products of 17% following its 2019 theatrical release. Cost of sales decreased 3% in the third quarter of 2020, as compared to an 8% increase in net sales, primarily due to lower royalty expense. Gross margin in the third quarter of 2020 increased primarily due to incremental realized savings from the cost savings programs and lower royalty expense. International segment income was$183.2 million in the third quarter of 2020, as compared to segment income of$89.2 million in the third quarter of 2019; the increase was primarily due to higher gross profit and lower advertising and promotion expenses.
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American Girl Segment
The following table provides a summary of Mattel's net sales, segment loss, and
gross sales by categories, along with supplemental information by brand, for the
American Girl segment for the third quarter of 2020 and 2019:
For the Three Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2020 2019 Reported Impact
(In millions, except percentage information)
Net Sales $ 51.4 $ 51.8 -1 % - %
Segment Loss (10.3) (11.1) -7 %
American Girl Segment
Gross Sales $ 53.7 $ 54.8 -2 % - %
Sales Adjustments (2.3) (3.0)
Net Sales $ 51.4 $ 51.8 -1 % - %
Gross sales for the American Girl segment were $53.7 million in the third
quarter of 2020, a decrease of $1.1 million , or 2%, as compared to $54.8 million
in the third quarter of 2019. The decrease in American Girl gross sales was
primarily due to lower sales in proprietary retail channels, which were
negatively impacted by retail disruptions due to COVID-19, and the impact of
permanent closure of certain retail stores, substantially offset by higher
direct-to-consumer channel sales, which doubled during the third quarter of
2020.
Cost of sales increased 15% in the third quarter of 2020, as compared to a 1%
decrease in net sales, primarily due to higher product and other costs and
higher freight and logistics expenses. Gross margin in the third quarter of 2020
decreased primarily due to increased freight and logistics expenses due to
higher direct-to-consumer channel sales, partially offset by incremental
realized savings from cost savings programs.
American Girl segment loss was $10.3 million in the third quarter of 2020, as
compared to segment loss of $11.1 million in the third quarter of 2019. This
improvement was primarily driven by lower selling and administrative expense,
and advertising and promotion expenses, partially offset by lower gross profit.
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Results of Operations-First Nine Months Consolidated Results Net sales for the first nine months of 2020 were$2.96 billion , a 2% decrease, as compared to$3.03 billion for the first nine months of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. Net loss for the first nine months of 2020 was$3.9 million , or$0.01 per share, as compared to a net loss of$213.7 million , or$0.62 per share, in the first nine months of 2019. The lower net loss was due to higher gross profit, driven by incremental realized savings from the cost savings programs, and the absence of the impact of the inclined sleeper product recalls of approximately$34 million . The following table provides a summary of Mattel's consolidated results for the first nine months of 2020 and 2019: For the
Nine Months Ended
September 30, 2020 September 30, 2019 Year/Year Change
% of Net % of Net Basis Points
Amount Sales Amount Sales % of Net Sales
(In millions, except percentage and basis point information)
Net sales $ 2,957.9 100.0 % $ 3,030.9 100.0 % -2 % -
Gross profit $ 1,408.4 47.6 % $ 1,267.6 41.8 % 11 % 580.0
Advertising and promotion expenses 239.0 8.1 % 324.3 10.7 % -26 % (260.0)
Other selling and administrative
expenses 981.2 33.2 % 971.6 32.1 % 1 % 110.0
Operating income (loss) 188.2 6.4 % (28.3) -0.9 % n/m 730.0
Interest expense 149.0 5.0 % 140.9 4.6 % 6 % 40.0
Interest (income) (3.6) -0.1 % (4.6) -0.2 % -23 % 10.0
Other non-operating (income) expense,
net (0.1) 2.9
Income (loss) before income taxes 42.9 1.5 % (167.5) -5.5 % n/m 700.0
Provision for income taxes 46.8 46.2
Net loss $ (3.9) -0.1 % $ (213.7) -7.1 % -98 % 700.0
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Sales
Net sales for the first nine months of 2020 were$2.96 billion , a decrease of$73.0 million or 2%, as compared to$3.03 billion for the first nine months of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. The following table provides a summary of Mattel's consolidated gross sales by categories, along with supplemental information by brand, for the first nine months of 2020 and 2019: For the Nine Months Ended Currency September 30, September 30, % Change as Exchange Rate 2020 2019 Reported Impact (In millions, except percentage information) Gross Sales by Categories Dolls$ 1,177.4 $ 1,093.9 8 % -2 % Infant, Toddler, and Preschool 744.2 876.6 -15 % -1 % Vehicles 713.7 744.4 -4 % -2 % Action Figures,Building Sets , Games, and Other 667.6 684.4 -2 % -1 % Gross Sales$ 3,302.9 $ 3,399.3 -3 % -2 % Sales Adjustments (345.0) (368.4) Net Sales$ 2,957.9 $ 3,030.9 -2 % -1 % Supplemental Gross Sales Disclosure Gross Sales by Top 3 Power Brands Barbie$ 879.0 $ 762.8 15 % -2 % Hot Wheels 607.9 619.0 -2 % -3 % Fisher-Price and Thomas & Friends 692.7 791.1 -12 % -1 % Other 1,123.4 1,226.3 -8 % -1 % Gross Sales$ 3,302.9 $ 3,399.3 -3 % -2 % Gross sales were$3.30 billion in the first nine months of 2020, a decrease of$96.4 million or 3%, as compared to$3.40 billion in the first nine months of 2019, with an unfavorable impact from changes in currency exchange rates of 2 percentage points. The decrease in gross sales for the first nine months of 2020 was primarily due to lower sales of Infant, Toddler, and Preschool. Of the 8% increase in Dolls gross sales, 11% was due to higher sales of Barbie products, primarily driven by positive brand momentum and POS. This was partially offset by lower sales of American Girl products of 1%, lower sales of Enchantimals products of 1%, and lower sales of Polly Pocket products of 1%. Of the 15% decrease in Infant, Toddler, and Preschool gross sales, 11% was due to lower sales of Fisher-Price and Thomas & Friends products and 4% was due to lower sales ofFisher-Price Friends products. Of the 4% decrease in Vehicles gross sales, 2% was due to lower sales of CARS products following its movie launch in a prior year and 1% was due to lower sales of Hot Wheels products. Of the 2% decrease in Action Figures,Building Sets , Games, and Other gross sales, 14% was due to lower sales of Toy Story 4 products following its 2019 theatrical release, partially offset by initial sales of Star Wars: The Child plush products of 6% and higher sales of card games products, including UNO, of 6%.
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Cost of Sales Cost of sales as a percentage of net sales was 52.4% in the first nine months of 2020, as compared to 58.2% in the first nine months of 2019. Cost of sales decreased by$213.8 million , or 12%, to$1.55 billion in the first nine months of 2020 from$1.76 billion in the first nine months of 2019, as compared to a 2% decrease in net sales. Within cost of sales, product and other costs decreased by$160.8 million , or 11%, to$1.27 billion in the first nine months of 2020 from$1.43 billion in the first nine months of 2019; freight and logistics expenses decreased by$4.9 million , or 3%, to$170.2 million in the first nine months of 2020 from$175.1 million in the first nine months of 2019; and royalty expense decreased by$48.0 million , or 30%, to$110.3 million in the first nine months of 2020 from$158.4 million in the first nine months of 2019. Within cost of sales, certain inbound freight costs were previously classified as freight and logistics costs. Mattel reclassified such inbound freight costs from freight and logistics expenses to present all inbound freight costs within product and other costs for the periods and segments presented. Gross Margin Gross margin increased to 47.6% in the first nine months of 2020 from 41.8% in the first nine months of 2019. The increase in gross margin was primarily driven by incremental realized savings from the cost savings programs, a decrease in royalty expense resulting from lower sales of licensed products, and the absence of the inclined sleeper product recalls of approximately$27 million , partially offset by unfavorable product mix. Advertising and Promotion Expenses Advertising and promotion expenses primarily consist of: (i) media costs, which primarily include the media, planning, and buying fees for television, print, and online advertisements; (ii) non-media costs, which primarily include commercial and website production, merchandising, and promotional costs; (iii) retail advertising costs, which primarily include consumer direct catalogs, newspaper inserts, fliers, and mailers; and (iv) generic advertising costs, which primarily include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to 8.1% in the first nine months of 2020 from 10.7% in the first nine months of 2019 primarily as a result of a reduction and deferral of 2020 advertising and promotion spend to the fourth quarter to increase support for Mattel's products during the holiday shopping season. Other Selling and Administrative Expenses Other selling and administrative expenses were$981.2 million , or 33.2% of net sales, in the first nine months of 2020, as compared to$971.6 million , or 32.1% of net sales, in the first nine months of 2019. The increase in other selling and administrative expenses was primarily driven by higher incentive compensation expense, partially offset by incremental realized savings from the cost savings programs. Interest Expense Interest expense was$149.0 million in the first nine months of 2020, as compared to$140.9 million in the first nine months of 2019. The increase in interest expense was due to the higher interest rate associated with the refinancing of both the 2010 Senior Notes dueOctober 2020 and the 2016 Senior Notes dueAugust 2021 with the 2019 Senior Notes dueDecember 2027 . Provision for Income Taxes Mattel's provision for income taxes was$46.8 million and$46.2 million for the first nine months of 2020 and 2019, respectively. For the first nine months of 2020, Mattel recognized a net discrete tax expense of$11.4 million , primarily related to an expense for reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. During the first nine months of 2019, Mattel recognized a discrete tax benefit of$13.4 million related to the reassessment of the future realizability of certain foreign deferred tax assets, offset by discrete tax expense of$12.3 million related to reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. As a result of the establishment of a valuation allowance onU.S. deferred tax assets, there was noU.S. tax benefit provided forU.S. losses during the first nine months of 2020 and 2019.
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Segment Results North America Segment The following table provides a summary of Mattel's net sales, segment income, and gross sales by categories, along with supplemental information by brand, for theNorth America segment for the first nine months of 2020 and 2019: For the Nine Months Ended Currency September 30, September 30, % Change as Exchange Rate 2020 2019 Reported Impact (In millions, except percentage information) Net Sales$ 1,645.2 $ 1,586.2 4 % - % Segment Income$ 430.4 $ 202.9 112 % Gross Sales by Categories Dolls$ 523.6 $ 424.2 23 % - % Infant, Toddler, and Preschool 464.3 525.3 -12 % - % Vehicles 356.2 344.3 3 % - % Action Figures,Building Sets , Games, and Other 414.8 403.4 3 % - % Gross Sales$ 1,758.9 $ 1,697.2 4 % - % Sales Adjustments (113.8) (111.0) Net Sales$ 1,645.2 $ 1,586.2 4 % - % Supplemental Gross Sales Disclosure Gross Sales by Top 3 Power Brands Barbie$ 477.7 $ 369.0 29 % -1 % Hot Wheels 296.8 276.4 7 % - % Fisher-Price and Thomas & Friends 423.2 472.1 -10 % - % Other 561.2 579.7 -3 % - % Gross Sales$ 1,758.9 $ 1,697.2 4 % - % Gross sales for theNorth America segment were$1.76 billion in the first nine months of 2020, an increase of$61.7 million , or 4%, as compared to$1.70 billion in the first nine months of 2019. The increase in theNorth America segment gross sales was primarily due to higher sales of Dolls, partially offset by lower sales of Infant, Toddler, and Preschool. Of the 23% increase in Dolls gross sales, 25% was due to higher sales of Barbie products, primarily driven by positive brand momentum and POS, and 2% was due to initial sales ofCave Club products. This was partially offset by lower sales of BTS products of 2%, lower sales of Enchantimals products of 1%, and lower sales of Lil' Gleemerz products of 1%. Of the 12% decrease in Infant, Toddler, and Preschool gross sales, 10% was due to lower sales of Fisher-Price and Thomas & Friends products, including the impact of lower sales of Imaginext Toy Story 4 products. Of the 3% increase in Vehicles gross sales, 5% was due to higher sales of Hot Wheels products. This was partially offset by lower sales of CARS products of 1% following its movie launch in a prior year and lower sales of Matchbox products of 1%. Of the 3% increase in Action Figures,Building Sets , Games, and Other gross sales, 12% was due to initial sales of Star Wars: The Child plush products and 9% was due to higher sales of card games products, including UNO. This was partially offset by lower sales of Toy Story 4 products of 19% following its 2019 theatrical release. Cost of sales decreased 10% during the first nine months of 2020, as compared to a 4% increase in net sales, primarily driven by lower product and other costs and royalty expense. Gross margin in the first nine months of 2020 increased primarily due to lower product costs driven by incremental realized savings from the cost savings programs, lower royalty expense, and the absence of the inclined sleeper product recall expense of approximately$26 million in 2019.North America segment income was$430.4 million in the first nine months of 2020, as compared to segment income of$202.9 million in the first nine months of 2019; the improvement was primarily due to higher gross profit and lower advertising and promotion expenses.
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International Segment
The following table provides a summary of Mattel's net sales, segment income,
and gross sales by categories, along with supplemental information by brand, for
the International segment for the first nine months of 2020 and 2019:
For the Nine Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2020 2019 Reported Impact
(In millions, except percentage information)
Net Sales $ 1,196.0 $ 1,315.0 -9 % -4 %
Segment Income $ 139.4 $ 61.4 127 %
Gross Sales by Categories
Dolls $ 532.9 $ 535.0 - % -4 %
Infant, Toddler, and Preschool 279.9 351.3 -20 % -3 %
Vehicles 357.5 400.1 -11 % -5 %
Action Figures, Building Sets , Games, and
Other 252.7 281.0 -10 % -3 %
Gross Sales $ 1,423.1 $ 1,567.4 -9 % -4 %
Sales Adjustments (227.2) (252.4)
Net Sales $ 1,196.0 $ 1,315.0 -9 % -4 %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands
Barbie $ 401.3 $ 393.9 2 % -4 %
Hot Wheels 311.1 342.6 -9 % -5 %
Fisher-Price and Thomas & Friends 269.5 319.1 -16 % -4 %
Other 441.2 511.9 -14 % -4 %
Gross Sales $ 1,423.1 $ 1,567.4 -9 % -4 %
Gross sales for the International segment were $1.42 billion in the first nine
months of 2020, a decrease of $144.3 million , or 9%, as compared to $1.57
billion in the first nine months of 2019, with an unfavorable impact from
changes in currency exchange rates of 4 percentage points. The decrease in the
International segment gross sales was due to lower sales of Infant, Toddler, and
Preschool and Vehicles.
Gross sales of Dolls remained flat year-over-year, with initial sales of Cave
Club products of and higher sales of Barbie products, substantially offset by
lower sales of Polly Pocket products and lower sales of Enchantimals products.
Of the 20% decrease in Infant, Toddler, and Preschool gross sales, 14% was due
to lower sales of Fisher-Price and Thomas & Friends products, including the
impact of COVID-19, and 5% was due to lower sales of Fisher-Price Friends
products primarily driven by the exiting of certain licensing partnerships.
Of the 11% decrease in Vehicles gross sales, 8% was due to lower sales of Hot
Wheels products, including the impact of COVID-19, and 3% was due to lower sales
of CARS products following its movie launch in a prior year.
Of the 10% decrease in Action Figures, Building Sets , Games, and Other gross
sales, 18% was due to lower sales of Toy Story 4 products following its 2019
theatrical release, partially offset by higher sales of card games products,
including UNO, of 6% and higher sales of family games products, including
Pictionary and Scrabble, of 4%.
Cost of sales decreased 17% in the first nine months of 2020, as compared to a
9% decrease in net sales, primarily due to lower product and other costs and
royalty expense. Gross margin in the first nine months of 2020 increased
primarily due to lower product costs driven by incremental realized savings from
the cost savings programs and lower royalty expense.
International segment income was $139.4 million in the first nine months of
2020, as compared to segment income of $61.4 million in the first nine months of
2019. The increase was primarily due to lower advertising and promotion
expenses.
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American Girl Segment
The following table provides a summary of Mattel's net sales, segment loss, and
gross sales by categories, along with supplemental information by brand, for the
American Girl segment for the first nine months of 2020 and 2019:
For the Nine Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2020 2019 Reported Impact
(In millions, except percentage information)
Net Sales $ 116.8 $ 129.7 -10 % - %
Segment Loss $ (41.6) $ (41.4) - %
American Girl Segment
Total Gross Sales $ 120.9 $ 134.7 -10 % - %
Sales Adjustments (4.1) (5.0)
Total Net Sales $ 116.8 $ 129.7 -10 % - %
Gross sales for the American Girl segment was $120.9 million in the first nine
months of 2020, a decrease of $13.8 million , or 10%, as compared to $134.7
million in the first nine months of 2019. The decrease in American Girl gross
sales was primarily due to lower sales in proprietary retail channels, which
were negatively impacted by retail disruption due to COVID-19, and the impact of
permanent closure of certain retail stores. This was partially offset by higher
direct-to-consumer channel sales.
Cost of sales remained flat year-over-year, as compared to a 10% decrease in net
sales, primarily driven by higher freight and logistics expenses, substantially
offset by lower product and other costs. Gross margin in the first nine months
of 2020 decreased primarily due to higher freight and logistics expenses due to
higher direct-to-consumer channel sales, partially offset by lower product costs
driven by the incremental realized savings from cost savings programs.
American Girl segment loss was $41.6 million in the first nine months of 2020,
as compared to segment loss of $41.4 million in the first nine months of 2019.
The decline was driven primarily by lower net sales, substantially offset by
lower other selling and administrative expenses.
Cost Savings Programs
Capital Light Program
During the first quarter of 2019, Mattel announced the commencement of its
Capital Light program to optimize Mattel's manufacturing footprint (including
the sale or consolidation of manufacturing facilities), increase the
productivity of its plant infrastructure, and achieve additional efficiencies
across its entire supply chain. In conjunction with the Capital Light program,
Mattel discontinued production in 2019 at certain plants located in China ,
Indonesia , and Mexico . In addition to the discontinued production at the three
plants, Mattel will discontinue production at its plant located in Canada in
2021. Mattel recorded severance and other restructuring charges of $11.2 million
for the first nine months of 2020. Of the total charges recorded for the first
nine months of 2020, $6.4 million was recorded within other selling and
administrative expenses and $4.8 million was recorded within cost of sales in
the consolidated statements of operations.
As of September 30, 2020 , Mattel has recorded cumulative severance and other
restructuring charges related to the Capital Light program of $48.8 million ,
which include approximately $14 million of non-cash charges. Mattel expects to
incur total severance and other restructuring charges, excluding non-cash
charges, of approximately $38 million related to the Capital Light program.
Mattel is currently evaluating other cost saving measures, including the
optimization of owned and operated manufacturing facilities and the geographical
footprint of co-manufacturing facilities, which may result in incremental cost
savings. Mattel realized cost savings (before severance, restructuring costs,
and cost inflation) of approximately $37 million , primarily within gross profit,
for the first nine months of 2020 and has achieved approximately $52 million of
run-rate savings in connection with the program. Mattel expects to realize
cumulative run-rate cost savings of approximately $65 million in 2020 and
approximately $72 million by 2021 related to the Capital Light program actions
taken through September 30, 2020 .
Other Cost Savings Actions
During the first nine months of 2020, Mattel recorded severance charges of
approximately $18 million , primarily related to actions taken to further
streamline its organizational structure.
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In connection with Mattel's continued efforts to further streamline its organizational structure and restore profitability, onMay 4, 2020 , Mattel committed to a planned 4% reduction in its non-manufacturing workforce. The timing of this action was accelerated due to the impact of COVID-19. Mattel expects to incur additional severance and restructuring charges of approximately$2 million , consisting solely of cash expenditures for employee termination and severance costs, through the end of 2020. As a result of the reduction in force actions initiated in 2020, Mattel expects to realize approximately$40 million of run-rate cost savings exiting 2020. During the first nine months of 2020, Mattel recorded additional severance and other restructuring charges of approximately$6 million , related to actions initiated in the prior year associated with the Structural Simplification cost savings program. 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$1.60 billion senior secured revolving credit facilities, and access to capital markets to fund its operations and obligations. Such obligations may include investing and financing activities such as capital expenditures and debt service. Of Mattel's$452.2 million in cash and equivalents atSeptember 30, 2020 , approximately$128 million was held by foreign subsidiaries. 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 meet its debt covenant requirements and its senior secured revolving credit facilities covenants, or deterioration of Mattel's credit ratings. As discussed above under Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Update" of this Quarterly Report on Form 10-Q, many of the aforementioned factors have been and may be adversely affected by COVID-19. However, based on Mattel's current business plan and factors known to date, including the currently known impacts of COVID-19, it is expected that existing cash and equivalents, cash flows from operations, availability under the senior secured credit revolving facilities, and access to capital markets, will be sufficient to meet working capital and operating expenditure requirements for the next twelve months. Additionally, Mattel expects to remain in compliance with all of its debt covenants throughNovember 3, 2021 . Refer to Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q for further discussion regarding potential impacts of COVID-19 on Mattel's business. Current Market Conditions Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates. Consistent with prior periods, Mattel intends to utilize its senior secured revolving credit facilities to meet its short-term liquidity needs. AtSeptember 30, 2020 , Mattel had$400.0 million in outstanding borrowings under the senior secured revolving credit facilities and approximately$13 million in outstanding letters of credit under the senior secured revolving credit facilities. During the first nine months of 2020, Mattel drew down$400.0 million under the senior secured revolving credit facilities as Mattel accelerated the timing of its borrowings under the senior secured revolving credit facilities in anticipation of its projected seasonal working capital requirements and in light of uncertainties surrounding the impact of COVID-19. DuringOctober 2020 , Mattel repaid$323.7 million under the senior secured revolving credit facilities, resulting in a total outstanding balance of$76.3 million as ofOctober 21, 2020 . 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.
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Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity required to buy inventory or raw materials, especially in light of the global economic uncertainty caused by COVID-19. Mattel monitors its customers' financial condition and their liquidity in order to mitigate Mattel's accounts receivable collectibility risks, and customer terms and credit limits are adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to ensure collectibility of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, factoring, 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, including as a result of the market disruptions caused by COVID-19, 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. Mattel's business has been impacted by COVID-19. Refer to Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Update" and Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q for further discussion regarding the impact and potential impacts of COVID-19 on Mattel's business. Cash Flow Activities Cash flows used for operating activities were$434.0 million in the first nine months of 2020, as compared to$513.7 million in the first nine months of 2019. The decrease in cash flows used for operating activities was primarily due to lower net loss, excluding the impact of non-cash charges, partially offset by higher seasonal working capital usage. Cash flows used for investing activities were$115.2 million in the first nine months of 2020, as compared to$78.4 million in the first nine months of 2019. The increase in cash flows used for investing activities was primarily driven by higher payments made for foreign currency forward exchange contracts and higher capital spending in the first nine months of 2020. Cash flows provided by financing activities were$393.4 million in the first nine months of 2020, as compared to$218.3 million in the first nine months of 2019. The increase in cash flows provided from financing activities was primarily driven by higher net proceeds from short-term borrowings in the first nine months of 2020. 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$177.9 million to$452.2 million atSeptember 30, 2020 , as compared to$630.0 million atDecember 31, 2019 , primarily due to seasonal working capital usage and capital expenditures, partially offset by results of operations, excluding the impact of non-cash charges and net proceeds from short-term borrowings during the first nine months of 2020. Mattel's cash and equivalents increased$233.9 million to$452.2 million atSeptember 30, 2020 , as compared to$218.3 million atSeptember 30, 2019 , primarily due to lower net loss, excluding the impact of non-cash charges, and higher net proceeds from short-term borrowings during the first nine months of 2020, partially offset by higher seasonal working capital usage and higher payments made for foreign currency forward exchange contracts. Accounts receivable increased$389.8 million to$1.33 billion atSeptember 30, 2020 , as compared to$936.4 million atDecember 31, 2019 , primarily due to higher sales in the third quarter of 2020 and the seasonality of Mattel's business, partially offset by the impact of foreign exchange, due to the strengthening of theU.S. dollar. Accounts receivable increased$34.9 million to$1.33 billion atSeptember 30, 2020 , as compared to$1.29 billion atSeptember 30, 2019 , primarily due to higher sales in the third quarter of 2020, partially offset by improved collections and lower days of sales outstanding. Inventory increased$168.1 million to$663.6 million atSeptember 30, 2020 , as compared to$495.5 million atDecember 31, 2019 , primarily due to seasonal inventory build, partially offset by the impact of foreign exchange, due to the strengthening of theU.S. dollar. Inventory decreased$37.9 million to$663.6 million atSeptember 30, 2020 , as compared to$701.6 million atSeptember 30, 2019 , primarily due to higher than anticipated sales as demand increased during the third quarter of 2020. Accounts payable and accrued liabilities remained relatively flat at$1.24 billion atSeptember 30, 2020 , as compared to$1.23 billion atDecember 31, 2019 . Accounts payable and accrued liabilities remained relatively flat at$1.24 billion atSeptember 30, 2020 , as compared to$1.23 billion atSeptember 30, 2019 .
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Mattel had
September 30, 2020 September 30, 2019 December 31, 2019
(In millions, except percentage information)
Cash and equivalents $ 452.2 $ 218.3 $ 630.0
Short-term borrowings 400.0 230.0 -
2010 Senior Notes due October 2020 - 250.0 -
2010 Senior Notes due October 2040 250.0 250.0 250.0
2011 Senior Notes due November 2041 300.0 300.0 300.0
2013 Senior Notes due March 2023 250.0 250.0 250.0
2016 Senior Notes due August 2021 - 350.0 -
2017/2018 Senior Notes due December 2025 1,500.0 1,500.0 1,500.0
2019 Senior Notes due December 2027 600.0 - 600.0
Debt issuance costs and debt discount (47.2) (43.2) (53.2)
Total debt $ 3,252.8 89 % $ 3,086.8 87 % $ 2,846.8 85 %
Stockholders' equity 404.5 11 463.8 13 491.7 15
Total capitalization (debt plus equity) $ 3,657.3 100 % $ 3,550.6 100 % $ 3,338.5 100 %
Total debt was$3.25 billion atSeptember 30, 2020 , as compared to$2.85 billion atDecember 31, 2019 . There were no borrowings or repayments on long-term debt during the first nine months of 2020. Short-term borrowings were$400.0 million atSeptember 30, 2020 . Total debt was$3.25 billion atSeptember 30, 2020 , as compared to$3.09 billion atSeptember 30, 2019 . The increase is primarily due to the short-term borrowings of$400.0 million atSeptember 30, 2020 . InNovember 2019 , Mattel used the proceeds from the$600.0 million aggregate principal issuance of the 2019 Senior Notes dueDecember 2027 to redeem and retire its$250.0 million of 2010 Senior Notes dueOctober 2020 and$350.0 million of 2016 Senior Notes dueAugust 2021 . Stockholders' equity decreased$87.2 million to$404.5 million atSeptember 30, 2020 , as compared to$491.7 million atDecember 31, 2019 , primarily due to a decrease in the currency translation adjustments balance within accumulated other comprehensive loss due to the strengthening of theU.S. dollar. Stockholders' equity decreased$59.2 million to$404.5 million atSeptember 30, 2020 , as compared to$463.8 million atSeptember 30, 2019 , primarily due to a decrease in the currency translation adjustments balance within accumulated other comprehensive loss due to the strengthening of theU.S. dollar. Litigation See Part I, Item 1 "Financial Statements-Note 21 to the Consolidated Financial Statements-Contingencies" of this Quarterly Report on Form 10-Q. Application of Critical Accounting Policies and Estimates Mattel's critical accounting policies and estimates are included in the 2019 Annual Report on Form 10-K and did not materially change during the first nine months of 2020. New Accounting Pronouncements See Part I, Item 1 "Financial Statements-Note 23 to the Consolidated Financial Statements-New Accounting Pronouncements" of this Quarterly Report on Form 10-Q.
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Non-GAAP Financial Measures To supplement the financial results presented in accordance withU.S. GAAP, Mattel presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by theSecurities and Exchange Commission . The non-GAAP financial measures that Mattel presents include currency exchange rate impact and gross sales. Mattel uses these measures to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance, and each is discussed below. Mattel believes that the disclosure of non-GAAP financial measures provides useful supplemental information to investors to be able to better evaluate ongoing business performance and certain components of Mattel's results. These measures are not, and should not be viewed as, substitutes 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 theU.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. Mattel then determines the currency exchange rate impact percentage by calculating the difference between the percentage change at such constant currency exchange rates and the percentage change at actual exchange rates. The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year. They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual foreign exchange rates. Mattel considers whether any changes to the constant currency rates are appropriate at the beginning of each year. The exchange rates used for these constant currency calculations are generally based on prior year actual exchange rates. Mattel believes that the disclosure of the percentage impact of foreign currency changes is useful supplemental information for investors to be able to gauge Mattel's current business performance and the longer-term strength of its overall business since foreign currency changes could potentially mask underlying sales trends. The disclosure of the percentage impact of foreign exchange allows investors to calculate the impact on a constant currency basis and also enhances their ability to compare financial results from one period to another. Gross Sales Gross sales represent sales to customers at invoice, excluding the impact of sales adjustments. Net sales, as reported, include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross sales as a measure for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross sales 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 not associated with categories, brands, and individual products, making net sales less meaningful. Because sales adjustments are not allocated to individual products, net sales are only presented on a consolidated and segment basis and not on a categories or brand level. Since sales adjustments are determined by customer rather than at the categories or brand level, Mattel believes that the disclosure of gross sales by categories and brand is useful supplemental information for investors to be able to assess the performance of its underlying categories and brands (e.g., Dolls, Barbie) and also enhances their ability to compare sales trends over time. Refer to Mattel's critical accounting policies and estimates included in the 2019 Annual Report on Form 10-K for further detail regarding sales adjustments.
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A reconciliation from Mattel's consolidated net sales to its consolidated gross
sales is as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
% Change % Change
% Change in % Change in
(In millions, except as Constant as Constant
percentage information) 2020 2019 Reported Currency 2020 2019 Reported Currency
Net sales $ 1,631.7 $ 1,481.6 10 % -1 % $ 2,957.9 $ 3,030.9 -2 % -1 %
Sales adjustments 186.7 175.4 345.0 368.4
Gross sales $ 1,818.4 $ 1,656.9 10 % -1 % $ 3,302.9 $ 3,399.3 -3 % -2 %
A reconciliation from net sales to gross sales for the North America segment is
as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
% Change % Change
% Change in % Change in
(In millions, except as Constant as Constant
percentage information) 2020 2019 Reported Currency 2020 2019 Reported Currency Net sales$ 924.7 $ 821.9 13 % - %$ 1,645.2 $ 1,586.2 4 % - % Sales adjustments 66.9 58.6 113.8 111.0 Gross sales$ 991.6 $ 880.4 13 % - %$ 1,758.9 $ 1,697.2 4 % - % A reconciliation from net sales to gross sales for the International segment is as follows: For the Three Months Ended September 30, For the Nine Months Ended September 30, % Change % Change % Change in % Change in (In millions, except as Constant as Constant percentage information) 2020 2019 Reported Currency 2020 2019
Reported Currency Net sales$ 655.5 $ 607.9 8 % -3 %$ 1,196.0 $ 1,315.0 -9 % -4 % Sales adjustments 117.5 113.8 227.2 252.4 Gross sales$ 773.1 $ 721.7 7 % -3 %$ 1,423.1 $ 1,567.4 -9 % -4 % A reconciliation from net sales to gross sales for the American Girl segment is as follows: For the Three Months Ended September 30, For the Nine Months Ended September 30, % Change % Change % Change in % Change in (In millions, except as Constant as Constant percentage information) 2020 2019 Reported Currency 2020 2019
Reported Currency Net sales$ 51.4 $ 51.8 -1 % - %$ 116.8 $ 129.7 -10 % - % Sales adjustments 2.3 3.0 4.1 5.0 Gross sales$ 53.7 $ 54.8 -2 % - %$ 120.9 $ 134.7 -10 % - %
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