MATTEL, INC. In the discussion that follows, "Mattel" refers to
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 theSEC ("Regulation G"), to supplement the financial results as reported in accordance with generally accepted accounting principles ("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 not associated with categories, brands, and individual products.
Note that amounts shown in millions or billions within this Item 2 may not sum due to rounding.
Overview
Mattel is a leading global toy company and owner of one of the strongest
catalogs of children's and family entertainment franchises in the world. Mattel
creates innovative products and experiences that inspire, entertain, and develop
children through play. Mattel is focused on the following evolved strategy to
grow its intellectual property ("IP") driven toy business and expand its
entertainment offering:
•Accelerate topline growth through scaling Mattel's portfolio, growing franchise
brands, and advancing e-commerce and direct-to-consumer business, and increasing
profitability by continuing to optimize operations; and
•Expand entertainment offering to capture the full value of Mattel's IP in
highly accretive business verticals, including content, consumer products, and
digital experiences.
Mattel is the owner of a portfolio of iconic brands and partners with global entertainment companies to license other intellectual property. Mattel's portfolio of owned and licensed brands and products are organized into the following categories:
Dolls-including brands such as Barbie,Monster High , American Girl, Polly Pocket, Spirit (Universal), and Enchantimals. 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. With an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products, American Girl is best known for imparting valuable life lessons through its inspiring dolls and books, featuring diverse characters from past and present. American Girl products are sold directly to consumers via its catalog, website, and proprietary retail stores. Infant, Toddler, and Preschool-including brands such as Fisher-Price and Thomas & Friends, Power Wheels, and Fireman Sam. As a leader in play and child development, Fisher-Price's purpose is amplifying the power of childhood. 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, including Hot Wheels Monster Trucks and Hot WheelsMario Kart (Nintendo), Matchbox, and CARS (Disney Pixar). In production for over 50 years, Hot Wheels continues to push the limits of performance and design and ignites the challenger spirit of kids, adults, and collectors. From die-cast vehicles to tracks, playsets, and accessories, the Mattel Vehicles portfolio has broad appeal that engages and excites kids of all ages.
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Action Figures,Building Sets , Games, and Other-these challenger categories include brands such as Masters of the Universe, MEGA, UNO, Lightyear (Disney Pixar),Jurassic World (NBCUniversal), WWE, and Star Wars (Disney ). Mattel's Action Figures portfolio is comprised of product lines associated with licensed entertainment franchises that are driven by major theatrical releases, such as Lightyear andJurassic World , as well as product lines from Mattel's owned IP, including Masters of the Universe. As the challenger brand inBuilding Sets , MEGA sparks creativity through the power of connection with builders of all ages and fans of global franchises. UNO is the classic matching card game that is easy to learn and fast fun for everyone. Other includes Plush, which contains product offerings associated with theatrical releases from Mattel's licensed entertainment franchises.Russia - Ukraine War The ongoing war betweenRussia andUkraine has led to volatility and disruption in these countries. The length and impact of the ongoing war is highly unpredictable. While Mattel has no direct operations inUkraine , its operations inRussia have experienced significant disruption. Mattel has paused all shipments intoRussia and net sales in these countries have declined in the first nine months of 2022. Mattel's net sales in these two countries represented less than 3% of total net sales during the year endedDecember 31, 2021 . In addition, as ofSeptember 30, 2022 , Mattel held$70.8 million of cash inRussia . While this cash can be used withinRussia , its movement out ofRussia is currently limited.
COVID-19 Update / Recent Developments
Although COVID-19 related disruptions, including, temporary business closures, reduced retail traffic, and local restrictions have impacted Mattel's business, consumer demand for toys has generally been strong in recent periods. However, a challenging macro-economic environment with higher volatility, including inflation, may impact consumer spending. To the extent cost inflation becomes more significant than anticipated, or Mattel is unable to offset higher costs through mitigating actions, inflation may have a material effect on Mattel's results of operations and financial condition. Retail and owned inventories have increased at the end of the third quarter of 2022 as Mattel accelerated production to improve service levels and reduce supply chain risk. Retailers also increased inventory levels to meet expected growth in demand and ahead of the holiday season to reduce risk. These factors contributed to year-over-year net sales increases during the first nine months of 2022 in theNorth America and International segments. Net sales declined in the American Girl segment during the first nine months of 2022, as compared to a strong first nine months of 2021. Cost inflation has had an unfavorable impact to Mattel's gross margin during the first nine months of 2022, due to a combination of increases in raw materials, ocean freight, and other supply chain costs. Mattel's margins have also been negatively impacted by increased royalty expense, reflecting increased sales of licensed properties. These negative factors were partially offset by pricing, incremental realized savings from the Optimizing for Growth program, and top-line growth, which generated favorable fixed cost absorption. As expected, cost inflation has been more significant in 2022 than in 2021, however, the impact of cost inflation has been partially mitigated by further pricing actions that occurred in the second half of 2022. The future impacts of COVID-19, and its resulting effects and other macro-economic factors on Mattel's business, results of operations, financial position, and cash flows remain uncertain at this time and could have unforeseen consequences that affect Mattel's business. Mattel continues to closely monitor the evolving circumstances and is actively managing its business as developments occur. Refer to Part I, Item 1A "Risk Factors" in the 2021 Annual Report on Form 10-K for further discussion regarding potential impacts of COVID-19 on Mattel's business. 31
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Results of
Consolidated Results
The following table provides a summary of Mattel's consolidated results for the third quarter of 2022 and 2021:
For the Three Months Ended
September 30, 2022 September 30, 2021 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 $ 1,755.8 $ 1,762.3 - %
Cost of sales 908.9 51.8 % 919.8 52.2 % -1 % (40)
Gross profit 846.9 48.2 % 842.5 47.8 % 1 % 40
Advertising and promotion expenses 127.6 7.3 % 117.6 6.7 % 8 % 60
Other selling and administrative
expenses 327.9 18.7 % 335.8 19.1 % -2 % (40)
Operating income 391.4 22.3 % 389.1 22.1 % 1 % 20
Interest expense 33.9 1.9 % 52.1 3.0 % -35 % (110)
Interest (income) (1.9) -0.1 % (0.8) - % 153 % (10)
Other non-operating (income) expense,
net (4.3) 3.9
Income before income taxes 363.7 20.7 % 333.9 18.9 % 9 % 180
Provision (benefit) for income taxes 80.0 (456.8)
(Income) from equity method investments (6.2) (4.5)
Net income $ 289.9 16.5 % $ 795.1 45.1 % -64 % (2,860)
Sales
The following table provides a summary of Mattel's consolidated gross billings
by categories, along with supplemental information by brand, for the third
quarter of 2022 and 2021:
For the Three Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2022 2021 Reported Impact
(In millions, except percentage information)
Gross Billings by Categories
Dolls $ 697.2 $ 719.5 -3 % -3 %
Infant, Toddler, and Preschool 370.1 406.9 -9 % -3 %
Vehicles 437.9 389.9 12 % -5 %
Action Figures, Building Sets , Games,
and Other 442.9 446.4 -1 % -4 %
Gross Billings $ 1,948.0 $ 1,962.7 -1 % -4 %
Sales Adjustments (192.3) (200.4)
Net Sales $ 1,755.8 $ 1,762.3 - % -3 %
Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie $ 519.6 $ 555.2 -6 % -3 %
Hot Wheels 371.6 329.9 13 % -4 %
Fisher-Price and Thomas & Friends 348.1 383.7 -9 % -2 %
Other 708.7 693.9 2 % -4 %
Gross Billings $ 1,948.0 $ 1,962.7 -1 % -4 %
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Gross billings were$1.95 billion in the third quarter of 2022, a decrease of$14.7 million , or 1%, as compared to$1.96 billion in the third quarter of 2021, with an unfavorable impact from currency exchange rates of four percentage points. The decrease was primarily due to lower billings of Infant, Toddler and Preschool and Dolls, partially offset by higher billings of Vehicles.
Dolls gross billings decreased 3%, of which 5% was due to lower billings of
Barbie products and 2% was due to lower billings of Spirit products, partially
offset by higher billings of
Infant, Toddler, and Preschool gross billings decreased 9%, due to lower billings of Fisher-Price and Thomas & Friends products.
Vehicles gross billings increased 12%, of which 10% was due to higher billings of Hot Wheels products, driven by positive brand momentum.
Action Figures,Building Sets , Games, and Other gross billings decreased 1%, of which 7% was due to lower billings of Plush products, and 7% was due to lower billings of Games products. This was partially offset by higher billings of Action Figure products of 11%, including initial billings of Lightyear products of 11% and higher billings ofJurassic World products of 10%, as a result of their theatrical releases during the second quarter of 2022, partially offset by lower billings of other Action Figure products of 9%. Sales adjustments represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. Sales adjustments decreased to$192.3 million in the third quarter of 2022, as compared to$200.4 million in the third quarter of 2021, primarily due to lower gross billings. Sales adjustments as a percentage of net sales was relatively consistent at 11.0% for the third quarter of 2022, as compared to 11.4% for the third quarter of 2021.
Cost of Sales
Cost of sales decreased by$10.9 million , or 1%, to$908.9 million in the third quarter of 2022 from$919.8 million in the third quarter of 2021. Within cost of sales, product and other costs decreased by$19.3 million , or 3%, to$752.5 million in the third quarter of 2022 from$771.9 million in the third quarter of 2021; royalty expense increased by$6.5 million , or 10%, to$73.2 million in the third quarter of 2022 from$66.7 million in the third quarter of 2021; and outbound freight and logistics expenses increased by$2.0 million , or 2%, to$83.2 million in the third quarter of 2022 from$81.2 million in the third quarter of 2021.
Gross Margin
Gross margin increased to 48.2% in the third quarter of 2022 from 47.8% in the third quarter of 2021. The increase in gross margin was driven by favorable pricing actions, incremental realized savings from the Optimizing for Growth program, partially offset by input cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and higher royalty expenses, reflecting increased sales of licensed properties.
Advertising and Promotion Expenses
Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs, (iii) retail advertising costs, which include consumer direct catalogs, and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales increased to 7.3% in the third quarter of 2022, as compared to 6.7% in the third quarter of 2021, primarily due to higher media spend.
Other Selling and Administrative Expenses
Other selling and administrative expenses were$327.9 million , or 18.7% of net sales, in the third quarter of 2022, as compared to$335.8 million , or 19.1% of net sales, in the third quarter of 2021. The decrease in other selling and administrative expenses was primarily due to lower incentive compensation expense and lower severance and restructuring charges, partially offset by higher employee compensation costs driven by salary inflation.
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Interest Expense
Interest expense was$33.9 million for the third quarter of 2022, as compared to$52.1 million for the third quarter of 2021. The decrease in interest expense was due to a loss on extinguishment of debt of$18.5 million associated with the repayment of the remaining principal balance of the 2017/2018 Senior Notes dueDecember 2025 (the "2025 Notes") in the third quarter of 2021.
Provision (Benefit) For Income Taxes
Mattel's provision for income taxes was$80.0 million for the three months endedSeptember 30, 2022 , and a benefit of$456.8 million for the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2021 , Mattel recognized a net discrete tax benefit of$465.3 million , primarily related to the release of valuation allowances on certainU.S. and foreign deferred tax assets, as well as income taxes recorded on a discrete basis in various jurisdictions, and reassessments of tax liabilities from prior years. During the three months endedSeptember 30, 2022 , Mattel recognized a net discrete tax benefit of$19.4 million , primarily related to income taxes recorded on a discrete basis in various jurisdictions and reassessments of tax liabilities from prior years. Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the three months endedSeptember 30, 2021 , Mattel released the valuation allowances related to certainU.S. and foreign deferred tax assets, except for certain tax assets that are primarily expected to expire before utilization. Valuation allowance releases resulted in the recognition of$492.2 million of deferred tax assets as ofSeptember 30, 2021 . Additional valuation allowance releases resulted in the aggregate recognition of$540.8 million of deferred tax assets as ofDecember 31, 2021 . Mattel's valuation allowance position has remained unchanged as ofSeptember 30, 2022 .
Segment Results
North America Segment
The following table provides a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for theNorth America segment for the third quarter of 2022 and 2021: For the Three Months Ended Currency September 30, September 30, % Change as Exchange Rate 2022 2021 Reported Impact (In millions, except percentage information) Net Sales$ 1,002.1 $ 1,037.0 -3 % - % Segment Operating Income 337.3 372.0 -9 % Gross Billings by Categories Dolls$ 342.9 $ 349.6 -2 % - % Infant, Toddler, and Preschool 239.8 271.8 -12 % - % Vehicles 226.3 216.7 4 % -1 % Action Figures,Building Sets , Games, and Other 258.7 272.0 -5 % - % Gross Billings$ 1,067.8 $ 1,110.1 -4 % - % Sales Adjustments (65.6) (73.1) Net Sales$ 1,002.1 $ 1,037.0 -3 % - % Supplemental Gross Billings Disclosure Gross Billings by Top 3 Power Brands Barbie$ 278.5 $ 308.8 -10 % - % Hot Wheels 184.1 181.1 2 % - % Fisher-Price and Thomas & Friends 223.5 252.4 -11 % - % Other 381.6 367.8 4 % - % Gross Billings$ 1,067.8 $ 1,110.1 -4 % - % 34
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Gross billings for theNorth America segment were$1.07 billion in the third quarter of 2022, a decrease of$42.3 million , or 4%, as compared to$1.11 billion in the third quarter of 2021. The decrease in theNorth America segment gross billings was primarily due to lower billings of Infant, Toddler and Preschool and Action Figures,Building Sets , Games and Other, partially offset by higher billings of Vehicles. Dolls gross billings decreased 2%, primarily due to lower billings of Barbie products of 9% and lower billings of Spirit products of 3%. This was partially offset by higher billings ofMonster High products of 9%.
Infant, Toddler, and Preschool gross billings decreased 12%, of which 11% was due to lower billings of Fisher-Price and Thomas & Friends products.
Vehicles gross billings increased 4%, of which 2% was due to higher billings of Matchbox products and 1% was due to higher billings of Hot Wheels products.
Action Figures,Building Sets , Games, and Other gross billings decreased 5%, of which 8% was due to lower billings of Plush products, 7% was due to lower billings of other Action Figures products, and 5% was due to lower billings of Games products. This was partially offset by initial billings of Lightyear products of 7% and higher billings ofJurassic World products of 6%, as a result of their theatrical releases during the second quarter of 2022.
Sales adjustments as a percentage of net sales was relatively consistent at 6.5% for the third quarter of 2022, as compared to 7.0% for the third quarter of 2021.
Cost of sales decreased 4% in the third quarter of 2022, as compared to a 3% decrease in net sales, with a decrease in cost of sales driven by lower product and other costs, offset by higher royalty expenses. Gross margin in the third quarter of 2022 increased primarily due to favorable pricing actions, incremental realized savings from the Optimizing for Growth program, and favorable product mix. The increase was partially offset by cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and higher royalty expenses, reflecting increased sales of licensed properties.North America segment operating income was$337.3 million in the third quarter of 2022, as compared to segment operating income of$372.0 million in the third quarter of 2021. The decrease was driven by lower gross profit, higher advertising and promotion expenses and higher other selling and administrative expenses.
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International Segment
The following table provides 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 2022 and 2021:
For the Three Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2022 2021 Reported Impact
(In millions, except percentage information)
Net Sales $ 704.6 $ 673.3 5 % -8 %
Segment Operating Income 162.8 150.6 8 %
Gross Billings by Categories
Dolls $ 303.5 $ 316.4 -4 % -8 %
Infant, Toddler, and Preschool 130.3 135.1 -4 % -9 %
Vehicles 211.6 173.2 22 % -10 %
Action Figures, Building Sets , Games,
and Other 184.2 174.4 6 % -9 %
Gross Billings $ 829.5 $ 799.0 4 % -9 %
Sales Adjustments (124.9) (125.7)
Net Sales $ 704.6 $ 673.3 5 % -8 %
Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie $ 241.1 $ 246.4 -2 % -8 %
Hot Wheels 187.5 148.8 26 % -10 %
Fisher-Price and Thomas & Friends 124.6 131.3 -5 % -8 %
Other 276.3 272.5 1 % -9 %
Gross Billings $ 829.5 $ 799.0 4 % -9 %
Gross billings for the International segment were $829.5 million in the third
quarter of 2022, an increase of $30.6 million , or 4%, as compared to
$799.0 million in the third quarter of 2021, with an unfavorable impact from
changes in currency exchange rates of nine percentage points. The increase was
primarily due to higher billings of Vehicles and Action Figures, Building Sets ,
Games, and Other. The increase was partially offset by lower billings of Dolls
and Infant, Toddler, and Preschool products.
Dolls gross billings decreased 4%, of which 3% was due to lower billings of Spirit products and 2% was due to lower billings of Barbie products.
Infant, Toddler, and Preschool gross billings decreased 4%, of which 6% was due
to lower billings of Fisher-Price and Thomas & Friends products, partially
offset by higher billings of
Vehicles gross billings increased 22% due to higher billings of Hot Wheels products.
Action Figures,Building Sets , Games, and Other gross billings increased 6%, of which 12% was due to initial billings of Lightyear products and 10% was due to higher billings ofJurassic World products, as a result of their theatrical releases during the second quarter of 2022. This was partially offset by lower billings of other Action Figures products of 9%, lower billings of Games products of 6%, and lower billings of Plush products of 2%.
Sales adjustments as a percentage of net sales was relatively consistent at 17.7% for the third quarter of 2022, as compared to 18.7% for the third quarter of 2021.
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Cost of sales increased 5% in the third quarter of 2022, as compared to a 5% increase in net sales. The increase in cost of sales was driven by higher product and other costs, higher royalty expenses, and higher outbound freight and logistics expenses. Gross margin in the third quarter of 2022 decreased slightly as cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and unfavorable foreign exchange were largely offset by favorable pricing actions and incremental realized savings from the Optimizing for Growth program. International segment operating income was$162.8 million in the third quarter of 2022, as compared to segment operating income of$150.6 million in the third quarter of 2021, primarily driven by higher gross profit. American Girl Segment The following table provides a summary of Mattel's net sales, segment operating loss, and gross billings for the American Girl segment for the third quarter of 2022 and 2021: For the Three Months Ended Currency September 30, September 30, % Change as Exchange Rate 2022 2021 Reported Impact (In millions, except percentage information) Net Sales $ 49.0 $ 52.0 -6 % - % Segment Operating Loss (9.0) (6.5) 37 % American Girl Segment Total Gross Billings $ 50.7 $ 53.6 -5 % - % Sales Adjustments (1.7) (1.6) Total Net Sales $ 49.0 $ 52.0 -6 % - % Gross billings for the American Girl segment was$50.7 million in the third quarter of 2022, a decrease of$2.9 million , or 5%, as compared to$53.6 million in the third quarter of 2021. The decrease was driven by lower sales of Girl of the Year products. Cost of sales decreased 2%, as compared to a 6% decrease in net sales, with the decrease in cost of sales driven by lower outbound freight and logistics expenses and lower product and other costs. Gross margin in the third quarter of 2022 decreased primarily due to cost inflation and higher royalty expenses, partially offset by incremental realized savings from the Optimizing for Growth program. American Girl segment operating loss was$9.0 million in the third quarter of 2022, as compared to$6.5 million in the third quarter of 2021, primarily driven by lower gross profit.
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Results of Operations-First Nine Months
Consolidated Results
The following table provides a summary of Mattel's consolidated results for the first nine months of 2022 and 2021:
For the Nine Months Ended
September 30, 2022 September 30, 2021 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 $ 4,032.8 $ 3,662.9 10 %
Cost of sales 2,154.1 53.4 % 1,920.5 52.4 % 12 % 100
Gross profit 1,878.7 46.6 % 1,742.4 47.6 % 8 % (100)
Advertising and promotion expenses 291.5 7.2 % 280.1 7.6 % 4 % (40)
Other selling and administrative expenses 990.6 24.6 % 990.2 27.0 % - % (240)
Operating income 596.5 14.8 % 472.1 12.9 % 26 % 190
Interest expense 99.7 2.5 % 220.7 6.0 % -55 % (350)
Interest (income) (5.1) -0.1 % (2.2) -0.1 % 135 % -
Other non-operating expense, net 12.0 3.3
Income before income taxes 489.9 12.1 % 250.2 6.8 % 96 % 530
Provision (benefit) for income taxes 130.5 (415.8)
(Income) from equity method investments (18.4) (11.1)
Net income $ 377.8 9.4 % $ 677.2 18.5 % -44 % (910)
Sales
The following table provides a summary of Mattel's consolidated gross billings
by categories, along with supplemental information by brand, for the first nine
months of 2022 and 2021:
For the Nine Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2022 2021 Reported Impact
(In millions, except percentage information)
Gross Billings by Categories
Dolls $ 1,494.6 $ 1,495.5 - % -3 %
Infant, Toddler, and Preschool 850.3 819.4 4 % -3 %
Vehicles 1,048.3 871.6 20 % -5 %
Action Figures, Building Sets , Games, and
Other 1,095.5 903.7 21 % -4 %
Gross Billings $ 4,488.7 $ 4,090.3 10 % -3 %
Sales Adjustments (456.0) (427.4)
Net Sales $ 4,032.8 $ 3,662.9 10 % -3 %
Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie $ 1,118.4 $ 1,122.7 - % -3 %
Hot Wheels 899.5 741.9 21 % -5 %
Fisher-Price and Thomas & Friends 787.9 763.0 3 % -3 %
Other 1,682.9 1,462.6 15 % -4 %
Gross Billings $ 4,488.7 $ 4,090.3 10 % -3 %
Gross billings were $4.49 billion in the first nine months of 2022, an increase
of $398.4 million , or 10%, as compared to $4.09 billion in the first nine months
of 2021. The increase in gross billings for the first nine months of 2022 was
due to higher billings of Action Figures, Building Sets , Games, and Other,
Vehicles, and Infant, Toddler, and Preschool.
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Dolls gross billings remained flat year-over-year, with higher billings of
Infant, Toddler, and Preschool gross billings increased 4%, of which 3% was due to higher billings of Fisher-Price and Thomas & Friends products.
Vehicles gross billings increased 20%, of which 18% was due to higher billings of Hot Wheels products.
Action Figures,Building Sets , Games, and Other gross billings increased 21%, of which 17% was due to higher billings ofJurassic World products and 12% was due to initial billings of Lightyear products, as a result of their theatrical releases during the second quarter of 2022. This was partially offset by lower billings of other Action Figures products of 6% and lower billings of Plush products of 3%. Sales adjustments represent arrangements with Mattel's customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors, such as sales to consumers. Sales adjustments increased to$456.0 million in the first nine months of 2022, as compared to$427.4 million in the first nine months of 2021, due to higher gross billings. Sales adjustments as a percentage of net sales was relatively consistent at 11.3% for the first nine months of 2022, as compared to 11.7% for the first nine months of 2021. Cost of Sales Cost of sales increased by$233.6 million , or 12%, to$2.15 billion in the first nine months of 2022 from$1.92 billion in the first nine months of 2021. Within cost of sales, product and other costs increased by$165.3 million , or 10%, to$1.75 billion in the first nine months of 2022 from$1.59 billion in the first nine months of 2021; royalty expense increased by$45.9 million , or 35%, to$177.9 million in the first nine months of 2022 from$131.9 million in the first nine months of 2021; and outbound freight and logistics expenses increased by$22.4 million , or 11%, to$222.3 million in the first nine months of 2022 from$199.9 million in the first nine months of 2021.
Gross Margin
Gross margin decreased to 46.6% in the first nine months of 2022 from 47.6% in the first nine months of 2021. The decrease in gross margin was driven by cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and higher royalty expenses, reflecting increased sales of licensed properties. The decrease was partially offset by favorable pricing actions, incremental realized savings from the Optimizing for Growth program, and favorable fixed cost absorption.
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 7.2% in the first nine months of 2022 from 7.6% in the first nine months of 2021, primarily due to a 10% increase in net sales.
Other Selling and Administrative Expenses
Other selling and administrative expenses were$990.6 million , or 24.6% of net sales, in the first nine months of 2022, as compared to$990.2 million , or 27.0% of net sales, in the first nine months of 2021. The increase in other selling and administrative expenses was primarily due to higher employee compensation expense related to salary inflation and higher outside services spend. These increases were substantially offset by lower incentive compensation expense, incremental realized savings from the Optimizing for Growth program, lower expenses related to inclined sleeper product recall litigation and lower severance and restructuring charges.
Interest Expense
Interest expense was$99.7 million in the first nine months of 2022, as compared to$220.7 million in the first nine months of 2021. The decrease in interest expense was due to a loss on extinguishment of debt of$101.7 million as a result of the redemption of the 2025 Notes in the first nine months of 2021 and lower interest expense from the refinancing and repayment of the 2025 Notes in 2021.
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Provision (Benefit) for Income Taxes
Mattel's provision for income taxes was an expense of$130.5 million for the nine months endedSeptember 30, 2022 , and a benefit of$415.8 million for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , Mattel recognized a net discrete tax benefit of$445.8 million , primarily related to the release of valuation allowances on certainU.S. and foreign deferred tax assets, as well as income taxes recorded on a discrete basis in various jurisdictions, and reassessments of tax liabilities from prior years. During the nine months endedSeptember 30, 2022 , Mattel recognized a net discrete tax expense of$4.8 million , primarily related to income taxes recorded on a discrete basis in various jurisdictions and reassessments of tax liabilities from prior years. 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 nine months endedSeptember 30, 2021 , Mattel released the valuation allowances related to certainU.S. and foreign deferred tax assets, except for certain tax assets that are primarily expected to expire before utilization. Valuation allowance releases resulted in the recognition of$492.2 million of deferred tax assets as ofSeptember 30, 2021 . Additional valuation allowance releases resulted in the aggregate recognition of$540.8 million of deferred tax assets as ofDecember 31, 2021 . Mattel's valuation allowance position has remained unchanged as ofSeptember 30, 2022 .
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Segment Results
North America Segment
The following table provides a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for theNorth America segment for the first nine months of 2022 and 2021: For the Nine Months Ended Currency September 30, September 30, % Change as Exchange Rate 2022 2021 Reported Impact (In millions, except percentage information) Net Sales$ 2,330.8 $ 2,077.5 12 % - % Segment Operating Income 707.6 646.5 9 % Gross Billings by Categories Dolls$ 715.8 $ 698.4 3 % - % Infant, Toddler, and Preschool 549.6 520.2 6 % - % Vehicles 550.7 457.8 20 % - % Action Figures,Building Sets , Games, and Other 668.3 543.3 23 % - % Gross Billings$ 2,484.4 $ 2,219.7 12 % - % Sales Adjustments (153.6) (142.2) Net Sales$ 2,330.8 $ 2,077.5 12 % - % Supplemental Gross Billings Disclosure Gross Billings by Top 3 Power Brands Barbie$ 599.2 $ 617.1 -3 % - % Hot Wheels 458.4 383.5 20 % - % Fisher-Price and Thomas & Friends 506.9 476.1 6 % -1 % Other 919.9 743.0 24 % - % Gross Billings$ 2,484.4 $ 2,219.7 12 % - % Gross billings for theNorth America segment were$2.48 billion in the first nine months of 2022, an increase of$264.7 million , or 12%, as compared to$2.22 billion in the first nine months of 2021. The increase in theNorth America segment gross billings was due to higher billings across all categories. Dolls gross billings increased 3%, of which 6% was due to higher billings ofMonster High products and 3% was due to higher billings of Polly Pocket products. This was partially offset by lower billings of Spirit products of 3% and lower billings of Barbie products of 3%.
Infant, Toddler, and Preschool gross billings increased 6%, of which 6% was due to higher billings of Fisher-Price and Thomas & Friends products.
Vehicles gross billings increased 20%, of which 16% was due to higher billings of Hot Wheels products and 2% was due to higher billings of Matchbox products.
Action Figures,Building Sets , Games, and Other gross billings increased 23%, of which 17% was due to higher billings ofJurassic World products and 12% was due to initial billings of Lightyear products, as a result of their theatrical releases during the second quarter of 2022, and higher sales of MEGA products of 4%. This was partially offset by lower billings of Plush products of 5% and lower billings of other Action Figures products of 4%. Sales adjustments as a percentage of net sales was relatively consistent at 6.6% for the first nine months of 2022, as compared to 6.8% for the first nine months of 2021.
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Cost of sales increased 14% during the first nine months of 2022, as compared to a 12% increase in net sales, primarily due to higher product and other costs, higher royalty expenses, and higher freight and logistics expenses. Gross margin in the first nine months of 2022 decreased primarily due to cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and higher royalty expenses, reflecting increased sales of licensed properties, partially offset by favorable pricing actions, incremental realized savings from the Optimizing for Growth program, and favorable fixed cost absorption.North America segment operating income was$707.6 million in the first nine months of 2022, as compared to segment operating income of$646.5 million in the first nine months of 2021, driven by higher gross profit, partially offset by higher other selling and administrative expenses and higher advertising and promotion expenses. International Segment The following table provides a summary of Mattel's net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the International segment for the first nine months of 2022 and 2021: For the Nine Months Ended Currency September 30, September 30, % Change as Exchange Rate 2022 2021 Reported Impact (In millions, except percentage information) Net Sales$ 1,584.9 $ 1,447.5 9 % -9 % Segment Operating Income 268.0 237.6 13 % Gross Billings by Categories Dolls$ 658.3 $ 655.8 - % -9 % Infant, Toddler, and Preschool 300.6 299.2 - % -8 % Vehicles 497.6 413.7 20 % -10 % Action Figures,Building Sets , Games, and Other 427.3 360.4 19 % -9 % Gross Billings$ 1,883.9 $ 1,729.1 9 % -8 % Sales Adjustments (299.0) (281.6) Net Sales$ 1,584.9 $ 1,447.5 9 % -9 % Supplemental Gross Billings Disclosure Gross Billings by Top 3 Power Brands Barbie$ 519.3 $ 505.6 3 % -8 % Hot Wheels 441.1 358.4 23 % -10 % Fisher-Price and Thomas & Friends 281.0 286.9 -2 % -7 % Other 642.5 578.2 11 % -9 % Gross Billings$ 1,883.9 $ 1,729.1 9 % -8 % Gross billings for the International segment were$1.88 billion in the first nine months of 2022, an increase of$154.7 million , or 9%, as compared to$1.73 billion in the first nine months of 2021, with an unfavorable impact from changes in currency exchange rates of 8 percentage points. The increase in the International segment gross billings was due to higher billings of Vehicles and Action Figures,Building Sets , Games, and Other.
Dolls gross billings remained flat year-over-year, with higher billings of Barbie products, offset by lower billings of Spirit products.
Infant, Toddler, and Preschool remained flat year-over-year, with higher
billings of
Vehicles gross billings increased 20% due to higher billings of Hot Wheels products.
Action Figures,Building Sets , Games, and Other gross billings increased 19%, of which 16% was due to higher billings ofJurassic World products and 13% was driven by initial billings of Lightyear products, as a result of their theatrical releases during the second quarter of 2022. This was partially offset by lower billings of other Action Figures products of 7% and lower billings of Games products of 5%.
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Sales adjustments as a percentage of net sales was relatively consistent at 18.9% for the first nine months of 2022, as compared to 19.5% for the first nine months of 2021.
Cost of sales increased 14% in the first nine months of 2022, as compared to a 9% increase in net sales, primarily due to higher product and other costs, higher royalty expenses, and higher freight and logistics expenses. Gross margin in the first nine months of 2022 decreased primarily due to cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and higher royalty expenses, reflecting increased sales of licensed properties, partially offset by favorable pricing actions, incremental realized savings from the Optimizing for Growth program, and favorable fixed cost absorption. International segment operating income was$268.0 million in the first nine months of 2022, as compared to segment operating income of$237.6 million in the first nine months of 2021, primarily driven by higher gross profit.
American Girl Segment
The following table provides a summary of Mattel's net sales, segment operating
loss, and gross billings for the American Girl segment for the first nine months
of 2022 and 2021:
For the Nine Months Ended Currency
September 30, September 30, % Change as Exchange Rate
2022 2021 Reported Impact
(In millions, except percentage information)
Net Sales $ 117.1 $ 137.8 -15 % - %
Segment Operating Loss (20.4) (25.8) -21 %
American Girl Segment
Total Gross Billings $ 120.5 $ 141.4 -15 % - %
Sales Adjustments (3.3) (3.6)
Total Net Sales $ 117.1 $ 137.8 -15 % - %
Gross billings for the American Girl segment were $120.5 million in the first
nine months of 2022, a decrease of $20.9 million , or 15%, as compared to $141.4
million in the first nine months of 2021. The decrease in American Girl gross
billings was primarily driven by lower sales of Girl of the Year products and
timing of promotional campaigns.
Cost of sales decreased 9% in the first nine months of 2022, as compared to a
15% decrease in net sales, primarily due to higher product and other costs and
higher outbound freight and logistics expenses. Gross margin in the first nine
months of 2022 decreased primarily due to cost inflation and unfavorable fixed
cost absorption, partially offset by incremental realized savings from the
Optimizing for Growth Program. American Girl segment operating loss was $20.4
million in the first nine months of 2022, as compared to segment operating loss
of $25.8 million in the first nine months of 2021. The improvement was primarily
due to lower other selling and administrative expenses as a result of a gain on
sale of the American Girl corporate office and distribution center during the
second quarter of 2022, partially offset by lower gross profit.
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Cost Savings Program
Optimizing for Growth (formerly Capital Light)
InFebruary 2021 , Mattel announced the Optimizing for Growth program, a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program (the "Program"). Targeted annual gross cost savings from actions that are expected to be completed beginning 2021 through 2023 are$250 million . Of the$250 million in targeted gross cost savings, approximately 55% is expected to benefit cost of sales, 35% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses. Estimated total cash expenditures associated with the Program, excluding previous actions taken under the Capital Light program, are expected to be approximately$125 to$150 million .
Mattel estimates the cost of actions for the Program, excluding previous actions taken under the Capital Light program, to be as follows:
Optimizing for Growth - Actions Estimate of Cost Employee severance$30 to$35 million Real estate/supply chain optimization and other restructuring costs$25 to$35 million Non-cash charges$55 to$60 million Total estimated severance and restructuring costs$110 to$130 million Information technology enhancements and other investments$70 to$80 million Total estimated actions$180 to$210 million Cumulatively, in conjunction with previous actions taken under the Capital Light program prior to 2021, targeted annual gross cost savings for the Program are$325 million by 2023, with total expected cash expenditures of approximately$165 to$190 million , and total expected non-cash charges of$70 to$75 million . Of the$325 million in targeted gross cost savings, approximately 65% is expected to benefit cost of sales, 25% is expected to benefit other selling and administrative expenses, and 10% is expected to benefit advertising and promotion expenses.
In connection with the Program, Mattel has recorded severance and other restructuring costs in the following cost and expense categories within the consolidated statements of operations:
For the Nine Months Ended
September 30, September 30,
2022 2021
(In millions)
Cost of sales (a) $ 9.8 $ 1.9
Other selling and administrative expenses (b) 16.6 26.4
$ 26.4 $ 28.3
(a)Severance and other restructuring costs recorded within cost of sales in the
consolidated statements of operations are included in segment operating income
(loss) in "Note 21 to the Consolidated Financial Statements-Segment Information"
of this Quarterly Report on Form 10-Q.
(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" of this Quarterly Report on Form 10-Q.
As ofSeptember 30, 2022 , Mattel has recorded cumulative severance and other restructuring charges related to the Program of approximately$112 million , which include approximately$26 million of non-cash charges. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately$240 million , which represents approximately 80% benefit to cost of sales, 15% benefit to other selling and administrative expenses, and 5% benefit to advertising and promotion expenses, as ofSeptember 30, 2022 , in connection with the Program.
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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 senior secured revolving credit facility (the "new senior secured 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$349.0 million in cash and equivalents atSeptember 30, 2022 , approximately$214.7 million was held by foreign subsidiaries, including$70.8 million held inRussia . 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 senior secured revolving credit facility covenants, or deterioration of Mattel's credit ratings. As discussed under Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Update / Recent Developments" of this Quarterly Report on Form 10-Q, many of the aforementioned factors have been and may be adversely affected by COVID-19 or other macro-economic factors. 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 new senior secured credit revolving facility, and access to capital markets, will be sufficient to meet working capital and operating expenditure requirements for the next twelve months. 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 new senior secured revolving credit facility to meet its short-term liquidity needs. AtSeptember 30, 2022 , Mattel had no outstanding borrowings under the new senior secured revolving credit facility and approximately$9 million in outstanding letters of credit under the new senior secured revolving credit facility.
Market conditions could affect certain terms of other debt instruments that Mattel enters into from time to time.
Mattel monitors the third-party depository institutions that hold Mattel's cash and equivalents. Mattel's emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks.
Mattel is subject to credit risks relating to the ability of its counterparties in hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and nonperformance have been considered in the fair value measurements of Mattel's foreign currency forward exchange contracts. Mattel closely monitors its counterparties and takes action, as necessary, to manage its counterparty credit risk. Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity required to buy inventory or raw materials. Mattel monitors its customers' financial condition and their liquidity in order to mitigate accounts receivable collectability risks, and customer terms and credit limits are adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to ensure collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, 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, 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 / Recent Developments" for further discussion regarding the impact and potential impacts of COVID-19 or other macro-economic factors on Mattel's business.
Cash Flow Activities
Cash flows used for operating activities were$274.8 million in the first nine months of 2022, as compared to$255.9 million in the first nine months of 2021. The increase in cash flows used for operating activities was primarily due to higher working capital usage, partially offset by higher net income, excluding the impact of the release of valuation allowances on deferred tax assets in 2021 and other non-cash items.
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Cash flows used for investing activities were$97.5 million in the first nine months of 2022, as compared to$71.5 million in the first nine months of 2021. The increase in cash flows used for investing activities was primarily due to lower proceeds from the sale of assets/business and higher capital expenditures in the first nine months of 2022 as compared to the first nine months of 2021. Cash flows used for financing activities were$9.5 million in the first nine months of 2022, as compared to$279.9 million in the first nine months of 2021. The decrease in cash flows used for financing activities was primarily due to cash used for repayment and refinancing of the 2017/2018 Senior Notes dueDecember 2025 in the first nine months of 2021.
Seasonal Financing
See Part I, Item 1 "Financial Statements-Note 7 to the Consolidated Financial Statements-Seasonal Financing" of this Quarterly Report on Form 10-Q.
Financial Position
Mattel's cash and equivalents decreased$382.4 million to$349.0 million atSeptember 30, 2022 , as compared to$731.4 million atDecember 31, 2021 , due to seasonal working capital usage and capital expenditures, partially offset by net income, excluding the impact of non-cash items, during the first nine months of 2022. Mattel's cash and equivalents increased$200.5 million to$349.0 million atSeptember 30, 2022 , as compared to$148.5 million atSeptember 30, 2021 , primarily due to cash flows from operating activities in the trailing twelve months, partially offset by capital expenditures and payments of short-term borrowings. Accounts receivable increased$308.9 million to$1.38 billion atSeptember 30, 2022 , as compared to$1.07 billion atDecember 31, 2021 , primarily due to the seasonality of Mattel's business, partially offset by the negative impact of foreign currency translation. Accounts receivable decreased$56.4 million to$1.38 billion atSeptember 30, 2022 , as compared to$1.44 billion atSeptember 30, 2021 , primarily due to the negative impact of foreign currency translation. Inventories increased$306.6 million to$1.08 billion atSeptember 30, 2022 , as compared to$777.2 million atDecember 31, 2021 , primarily due to seasonal inventory build and the impact of cost inflation. Inventories increased$229.3 million to$1.08 billion atSeptember 30, 2022 , as compared to$854.5 million atSeptember 30, 2021 , primarily due to accelerated seasonal production and the impact of cost inflation, partially offset by foreign currency translation. Prepaid expenses and other current assets decreased$24.4 million to$268.9 million atSeptember 30, 2022 , as compared to$293.3 million atDecember 31, 2021 , due to settlement of a receivable due from insurers related to a legal matter, partially offset by increases in derivative receivables and other miscellaneous prepaid expenses. Prepaid expenses and other current assets decreased$5.4 million to$268.9 million atSeptember 30, 2022 , as compared to$274.3 million atSeptember 30, 2021 , due to the settlement of a receivable due from insurers related to a legal matter, partially offset by increases in derivative receivables, prepaid royalties, and other miscellaneous prepaid expenses. Accounts payable and accrued liabilities decreased$295.0 million to$1.28 billion atSeptember 30, 2022 , as compared to$1.57 billion atDecember 31, 2021 , primarily due to the settlement of an accrued legal matter and the impact of foreign currency translation, as well as decreases to accrued advertising and accrued incentive compensation. Accounts payable and accrued liabilities decreased$181.5 million to$1.28 billion atSeptember 30, 2022 , as compared to$1.46 billion atSeptember 30, 2021 , primarily due to the impact of foreign currency translation and the settlement of an accrued legal matter, as well as a decrease to accrued incentive compensation.
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A summary of Mattel's capitalization is as follows:
September 30, 2022 September 30, 2021 December 31, 2021
(In millions, except percentage information)
Cash and equivalents $ 349.0 $ 148.5 $ 731.4
Short-term borrowings - 128.0 -
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
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 (25.5) (30.2) (29.0)
Total debt 2,574.5 57 % 2,697.8 67 % 2,571.0 62 %
Stockholders' equity 1,967.5 43 1,313.7 33 1,568.8 38
Total capitalization (debt plus equity) $ 4,541.9 100 % $ 4,011.5 100 % $ 4,139.8 100 %
OnMarch 19, 2021 , Mattel issued (i)$600 million aggregate principal amount of 3.375% Senior Notes due 2026 (the "2026 Notes") and (ii)$600 million aggregate principal amount of 3.750% Senior Notes due 2029 (the "2029 Notes" and, together with the 2026 Notes, the "Notes"). The 2026 Notes will mature onApril 1, 2026 and the 2029 Notes will mature onApril 1, 2029 , unless earlier redeemed in accordance with their respective terms. The Notes are guaranteed by Mattel's existing and, subject to certain exceptions, future wholly-owned domestic restricted subsidiaries that guarantee Mattel's new senior secured revolving credit facility or certain other indebtedness. The net proceeds from the offering, together with cash on hand, were used to redeem$1.23 billion in aggregate principal amount of Mattel's outstanding 2025 Notes and pay related prepayment premiums and transaction fees and expenses. As a result of the partial redemption of the 2025 Notes, Mattel incurred a loss on extinguishment of$83.2 million , comprised of$62.0 million of prepayment premium costs and a$21.2 million write-off of the unamortized debt issuance costs, which was recorded within interest expense in the consolidated statements of operations in the first quarter of 2021. OnJuly 1, 2021 , Mattel redeemed the remaining outstanding$275 million aggregate principal amount of the 2025 Notes. As a result of the redemption, Mattel incurred a loss on extinguishment of$18.5 million , comprised of$14.0 million of prepayment premium costs and a$4.5 million write-off of the unamortized debt issuance costs, which was recorded within interest expense in the consolidated statements of operations in the third quarter of 2021.
Total debt, including short-term borrowings, remained relatively consistent at
Total debt, including short-term borrowings, was$2.57 billion atSeptember 30, 2022 , as compared to$2.70 billion atSeptember 30, 2021 , primarily due to the repayment of short-term borrowings. Stockholders' equity increased$398.6 million to$1.97 billion atSeptember 30, 2022 , as compared to$1.57 billion atDecember 31, 2021 , primarily due to net income for the first nine months of 2022. Stockholders' equity increased$653.8 million to$1.97 billion atSeptember 30, 2022 , as compared to$1.31 billion atSeptember 30, 2021 , primarily due to net income for the trailing twelve months and the impact of share-based compensation recognized in additional paid-in capital.
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 2021
Annual Report on Form 10-K and did not materially change during the first nine
months of 2022.
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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 accounting principles generally accepted inthe United States of America ("U.S. GAAP"), Mattel presents a non-GAAP financial measure within the meaning of Regulation G promulgated by theSEC . 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 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. It then determines the currency exchange rate impact percentage by calculating the difference between the percentage change at such constant currency exchange rates and the percentage change at actual exchange rates. The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year. They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual foreign exchange rates. Mattel considers whether any changes to the constant currency rates are appropriate at the beginning of each year. The exchange rates used for these constant currency calculations are generally based on prior year actual exchange rates. Mattel believes that the disclosure of the percentage impact of foreign currency changes is useful supplemental information for investors to be able to gauge Mattel's current business performance and the longer-term strength of its overall business since foreign currency changes could potentially mask underlying sales trends. The disclosure of the percentage impact of foreign exchange allows investors to calculate the impact on a constant currency basis and also enhances their ability to compare financial results from one period to another. Key Performance Indicator Gross billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and not associated with categories, brands, and individual products.
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