MATTEL INC / DE / Discussion and analysis by management of the financial situation and operating results. (form 10-Q)

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In the discussion that follows, "Mattel" refers to Mattel, Inc. and/or one or
more of its subsidiaries.
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes that appear in Part I, Item 1
"Financial Statements" of this Quarterly Report on Form 10-Q. Mattel's business
is seasonal with consumers making a large percentage of all toy purchases during
the traditional holiday season; therefore, results of operations are most
comparable to corresponding periods.
The following discussion includes currency exchange rate impact, a non-GAAP
financial measure within the meaning of Regulation G promulgated by the SEC
("Regulation G"), to supplement the financial results as reported in accordance
with 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.
The following discussion has been amended to reflect Mattel's revision of
previously issued consolidated financial statements to correct for prior period
misstatements, which Mattel concluded did not, either individually or in the
aggregate, result in a material misstatement of its previously issued
consolidated financial statements. Further information regarding the revision is
included in Part 1, Item 1 "Note 1 to the Consolidated Financial Statements -
Basis of Presentation" and "Note 24 to the Consolidated Financial Statements -
Revision for Immaterial Misstatements" of this Quarterly Report on Form 10-Q.
Effective as of the first quarter of 2021, operating income by segment reviewed
by the Chief Operating Decision Maker does not include certain corporate
expenses which were historically allocated by segment. The prior period
presentation of operating income by segment has been conformed to the current
period's presentation.
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,
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 into an intellectual property ("IP") driven, high-performing
toy company:
•In the short-term, improve profitability by optimizing operations and
accelerate topline growth by growing Mattel's Power Brands and expanding
Mattel's brand portfolio.
•In the mid-to-long-term, continue to make progress on capturing the full value
of Mattel's IP through franchise management and online retail and e-commerce.
Mattel is the owner of a portfolio of iconic brands and partners with global
entertainment companies to license other intellectual property. Mattel's owned
and licensed brands and products are organized into the following categories:
Dolls-including brands such as Barbie, 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.
Its products are sold directly to consumers via its catalog, website, and
proprietary retail stores.
                                                                            

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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 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), and
Mario Kart (Nintendo). 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.
Action Figures, Building Sets, Games, and Other-including brands such as Masters
of the Universe, 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 building sets that encourage
kids and adults to unlock their creative potential. America's number one game,
UNO is the classic matching card game that is easy to learn and fast fun for
everyone.
COVID-19 Update
The impact of the coronavirus disease ("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.
Strong consumer demand for toys during the first nine months of 2021 contributed
to double digit year-over-year increases in net sales across all reportable
segments and growth in each geographic region, despite COVID-19 disruption and
local restrictions negatively impacting certain segments and locations. Mattel's
first half of 2020 results and net sales were significantly and negatively
impacted by COVID-19.
While COVID-19 has caused manufacturing and distribution disruption for Mattel
and the manufacturers and distribution network it relies upon, to date, this
disruption, including temporary plant and port closures, has not materially
impacted Mattel's ability to meet demand for its products. To the extent
COVID-19 causes further manufacturing and distribution disruption, particularly
during seasonally-high periods of production and/or distribution, Mattel's
ability to meet demand may be materially impacted.
Input cost inflation adversely affected Mattel's gross margin in the first nine
months of the year due to the increased demand for raw materials and
distribution services associated with the impact of COVID-19. Mattel has been
able to mitigate the adverse impact with the benefits of fixed cost absorption,
cost savings programs, and pricing actions. Mattel anticipates that input cost
inflation will continue to have an adverse impact on Mattel's gross margin in
the fourth quarter of 2021 as compared to the first half of 2021 and the prior
year, as it did during the third quarter of 2021. To the extent input cost
inflation becomes more widespread and/or significant than anticipated, it may
have a material effect on Mattel's results of operations.
Prolonged disruption to Mattel's customers, supply chain, or other critical
operations during the fourth quarter of 2021 would result in material adverse
effects to Mattel's business and its liquidity.  The future 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 I, Item 1A "Risk Factors" in the 2020 Annual Report on Form
10-K 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 of Operations-Third Quarter" and "Results of
Operations-First Nine Months" 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.


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Results of Operations-Third Quarter
Consolidated Results
The following table provides a summary of Mattel's consolidated results for the
third quarter of 2021 and 2020:
                                                                      For 

the three months ended

                                                     September 30, 2021                             September 30, 2020                               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                               $     1,762.3                       100.0  %       $  1,636.5                  100.0  %                           8  %                -
Gross profit                            $       842.5                        47.8  %       $    827.7                   50.6  %                           2  %             (280)
Advertising and promotion expenses              117.6                         6.7  %            102.5                    6.3  %                          15  %               40
Other selling and administrative
expenses                                        335.8                        19.1  %            345.7                   21.1  %                          -3  %             (200)
Operating Income                                389.1                        22.1  %            379.5                   23.2  %                           3  %             (110)
Interest expense                                 52.1                         3.0  %             50.4                    3.1  %                           3  %              (10)
Interest (income)                                (0.8)                          -  %             (0.5)                     -  %                          65  %                -
Other non-operating expense, net                  3.9                                             1.3
Income before income taxes                      333.9                        18.9  %            328.2                   20.1  %                           2  %             (120)
(Benefit) provision for income taxes           (456.8)                                           22.1
Income from equity method investments             4.5                                             5.2
Net Income                              $       795.1                        45.1  %       $    311.3                   19.0  %                         155  %            2,610


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 2021 and 2020:

                                                For the Three Months Ended                                                   Currency
                                           September 30,           September 30,              % Change as                 Exchange Rate
                                               2021                    2020                    Reported                       Impact
                                                                     (In millions, except percentage information)
Gross Billings by Categories
Dolls                                    $        719.5          $        690.5                           4  %                           1  %
Infant, Toddler, and Preschool                    406.9                   408.8                           -  %                           1  %
Vehicles                                          389.9                   369.4                           6  %                           1  %
Action Figures, Building Sets, Games,
and Other                                         446.4                   354.5                          26  %                           1  %
Gross Billings                           $      1,962.7          $      1,823.2                           8  %                           1  %
Sales Adjustments                                (200.4)                 (186.7)
Net Sales                                $      1,762.3          $      1,636.5                           8  %                           1  %

Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie                                   $        555.2          $        532.2                           4  %                           1  %
Hot Wheels                                        329.9                   312.8                           5  %                           1  %
Fisher-Price and Thomas & Friends                 383.7                   387.6                          -1  %                           1  %
Other                                             693.9                   590.5                          18  %                           2  %
Gross Billings                           $      1,962.7          $      1,823.2                           8  %                           1  %


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Gross billings were $1.96 billion in the third quarter of 2021, an increase of
$139.5 million or 8%, as compared to $1.82 billion in the third quarter of 2020,
with a favorable impact from changes in currency exchange rates of one
percentage point. The increase in third quarter of 2021 gross billings was
primarily due to higher billings of Action Figures, Building Sets, Games, and
Other, Vehicles, and Dolls.
Dolls gross billings increased 4%, of which 3% was due to higher billings of
Barbie products, driven by positive brand momentum and point of sale demand
("POS"), and 3% was due to initial billings of Spirit products. This was
partially offset by lower billings of Cave Club products of 2%.
Infant, Toddler, and Preschool gross billings remained flat year-over-year, with
lower billings of Fisher-Price and Thomas & Friends products offset by higher
billings of Power Wheels.
Vehicles gross billings increased 6%, of which 5% was due to higher billings of
Hot Wheels products, driven by positive brand momentum and POS, which benefited
from in-store impulse shopping.
Action Figures, Building Sets, Games, and Other gross billings increased 26%, of
which 10% was due to higher billings of Jurassic World, 9% was due to initial
billings of Masters of the Universe, and 6% was due to higher billings of plush.
This was partially offset by lower billings of card game products, including UNO
of 4%.
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 as a percentage
of net sales was consistent at 11.4% for the third quarter of 2021 and 2020.
Cost of Sales
Cost of sales as a percentage of net sales was 52.2% in the third quarter of
2021, as compared to 49.4% in the third quarter of 2020. Cost of sales increased
by $111.0 million, or 14%, to $919.8 million in the third quarter of 2021 from
$808.7 million in the third quarter of 2020, as compared to an 8% increase in
net sales in the third quarter of 2020. Within cost of sales, product and other
costs increased by $96.2 million, or 14%, to $771.9 million in the third quarter
of 2021 from $675.7 million in the third quarter of 2020; freight and logistics
expenses increased by $4.1 million, or 5%, to $81.2 million in the third quarter
of 2021 from $77.1 million in the third quarter of 2020; and royalty expenses
increased by $10.7 million, or 19%, to $66.7 million in the third quarter of
2021 from $56.0 million in the third quarter of 2020.
Gross Margin
Gross margin decreased to 47.8% in the third quarter of 2021 from 50.6% in the
third quarter of 2020. The decrease in gross margin was primarily due to cost
inflation driven by higher raw material and freight costs, partially offset by
pricing actions. Other negative factors, such as product mix and unfavorable
foreign exchange, were largely offset by the favorable impact of fixed cost
absorption and incremental realized savings from the cost savings programs.
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, newspaper inserts, fliers, and
mailers and (iv) generic advertising costs, which include trade show costs.
Advertising and promotion expenses as a percentage of net sales increased
slightly to 6.7% in the third quarter of 2021, as compared to 6.3% in the third
quarter of 2020 due to higher advertising and promotion spend. Advertising and
promotion expenses increased $15.1 million, or 15%, to $117.6 million in the
third quarter of 2021 from $102.5 million in the third quarter of 2020, due to
higher media spend.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $335.8 million, or 19.1% of net
sales, in the third quarter of 2021, as compared to $345.7 million, or 21.1% of
net sales, in the third quarter of 2020. The decrease in other selling and
administrative expenses was primarily due to incremental realized savings from
the cost savings programs and lower employee compensation costs, including the
timing of incentive compensation expense, partially offset by Optimizing for
Growth investments.
                                                                            

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Interest Expense
Interest expense was $52.1 million for the third quarter of 2021, as compared to
$50.4 million for the third quarter of 2020. The increase in interest expense
was due to loss on extinguishment of debt of $18.5 million associated with the
repayment of the remaining principal balance of 2025 Notes in the third quarter
of 2021. This was substantially offset by the impact of the aggregate repayment
of the 2025 Notes and lower interest expense resulting from the partial
refinancing of the 2025 Notes.
(Benefit) Provision for Income Taxes
Mattel's provision for income taxes was a benefit of $456.8 million for the
three months ended September 30, 2021 and provision for income taxes was an
expense of $22.1 million for the three months ended September 30, 2020. During
the three months ended September 30, 2021, Mattel recognized a net discrete tax
benefit of $465.3 million primarily related to the release of valuation
allowances on certain U.S. and foreign deferred tax assets, as well as income
taxes recorded on a discrete basis in various jurisdictions, and reassessments
of prior years' tax liabilities. During the three months ended September 30,
2020, Mattel recognized a net discrete tax expense of $1.7 million primarily
related to income taxes recorded on a discrete basis in various jurisdictions
and reassessments of prior years' tax liabilities.
The release of valuation allowances on certain U.S. and foreign deferred tax
assets resulted in an increase to deferred income taxes recorded within other
non-current assets. The increase in Mattel's income tax payable was due to
income tax expense on pretax income in certain foreign jurisdictions.
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 and nine months ended September 30, 2021, Mattel
continued to see improved and sustained profitability, which presents objective
positive evidence for the realizability of certain deferred tax assets. As such,
based on the overall analysis of the positive and negative evidence in each tax
jurisdiction, in the third quarter of 2021, Mattel released the valuation
allowances related to U.S. federal deferred tax assets and foreign deferred tax
assets, except for certain tax attributes expected to expire before utilization.
Valuation allowance releases in the third quarter of 2021 resulted in
recognition of a portion of these deferred tax assets and a benefit to Mattel's
provision for income taxes of 492.2 million.
                                                                            

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Segment Results
North America Segment
The following table provides a summary of Mattel's net sales, segment income,
and gross billings by categories, along with supplemental information by brand,
for the North America segment for the third quarter of 2021 and 2020:

                                                      For the Three Months Ended                                                   Currency
                                                September 30,            September 30,              % Change as                 Exchange Rate
                                                     2021                    2020                    Reported                       Impact
                                                                          (In millions, except percentage information)
Net Sales                                     $       1,037.0          $        926.6                          12  %                           -  %
Segment Income                                          372.0                   346.7                           7  %

Gross Billings by Categories
Dolls                                         $         349.6          $        328.6                           6  %                           -  %
Infant, Toddler, and Preschool                          271.8                   257.2                           6  %                           1  %
Vehicles                                                216.7                   189.6                          14  %                           -  %
Action Figures, Building Sets, Games, and
Other                                                   272.0                   218.1                          25  %                           1  %
Gross Billings                                $       1,110.1          $        993.5                          12  %                           1  %
Sales Adjustments                                       (73.1)                  (66.9)
Net Sales                                     $       1,037.0          $        926.6                          12  %                           -  %

Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie                                        $         308.8          $        297.6                           4  %                           -  %
Hot Wheels                                              181.1                   156.5                          16  %                           1  %
Fisher-Price and Thomas & Friends                       252.4                   241.6                           4  %                           -  %
Other                                                   367.8                   297.8                          23  %                           -  %
Gross Billings                                $       1,110.1          $        993.5                          12  %                           1  %



Gross billings for the North America segment were $1.11 billion in the third
quarter of 2021, an increase of $116.6 million, or 12%, as compared to $993.5
million in the third quarter of 2020, with a favorable impact from changes in
currency exchange rates of one percentage point. The increase in the North
America segment gross billings was due to higher billings across all categories.
Dolls gross billings increased 6%, of which 3% was due to higher billings of
Barbie products and 3% was due to initial billings of Spirit products.
Infant, Toddler, and Preschool gross billings increased 6%, of which 4% was due
to higher billings of Fisher-Price and Thomas & Friends products and 2% was due
to higher billings of Power Wheels products.
Vehicles gross billings increased 14%, of which 13% was due to higher billings
of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 25%, of
which 12% was due to higher billings of Jurassic World, 8% was due to initial
billings of Masters of the Universe, and 7% was due to higher billings from
plush. This was partially offset by lower billings of card game products,
including UNO, of 6%.
Sales adjustments as a percentage of net sales was relatively consistent at 7.0%
for the third quarter of 2021, as compared to 7.2% for the third quarter of
2020.
                                                                            

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Cost of sales increased 16% in the third quarter of 2021, as compared to a 12%
increase in net sales, primarily due to higher product and other costs. Gross
margin in the third quarter of 2021 decreased, due to cost inflation driven by
higher raw material and freight costs partially offset by incremental pricing
actions. Factors such as favorable impact of incremental realized savings from
the cost savings programs and fixed cost absorption, were largely offset by
other negative factors, including product mix. North America segment income was
$372.0 million in the third quarter of 2021, as compared to segment income of
$346.7 million in the third quarter of 2020; the improvement was due to higher
gross profit, partially offset by higher advertising and promotion expenses and
higher selling and administrative expenses.
International Segment
The following table provides a summary of Mattel's net sales, segment income,
and gross billings by categories, along with supplemental information by brand,
for the International segment for the third quarter of 2021 and 2020:

                                                For the Three Months Ended                                                    Currency
                                           September 30,           September 30,              % Change as                  Exchange Rate
                                               2021                    2020                     Reported                       Impact
                                                                     (In millions, except percentage information)
Net Sales                                $        673.3          $        658.4                            2  %                           2  %
Segment Income                                    150.6                   186.4                          -19  %

Gross Billings by Categories
Dolls                                    $        316.4          $        308.2                            3  %                           2  %
Infant, Toddler, and Preschool                    135.1                   151.6                          -11  %                           2  %
Vehicles                                          173.2                   179.8                           -4  %                           1  %
Action Figures, Building Sets, Games,
and Other                                         174.4                   136.4                           28  %                           3  %
Gross Billings                           $        799.0          $        775.9                            3  %                           2  %
Sales Adjustments                                (125.7)                 (117.5)
Net Sales                                $        673.3          $        658.4                            2  %                           2  %

Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie                                   $        246.4          $        234.6                            5  %                           2  %
Hot Wheels                                        148.8                   156.3                           -5  %                           2  %
Fisher-Price and Thomas & Friends                 131.3                   146.1                          -10  %                           2  %
Other                                             272.5                   238.9                           14  %                           3  %
Gross Billings                           $        799.0          $        775.9                            3  %                           2  %


Gross billings for the International segment were $799.0 million in the third
quarter of 2021, an increase of $23.1 million, or 3%, as compared to
$775.9 million in the third quarter of 2020, with a favorable impact from
changes in currency exchange rates of two percentage points. The increase in the
International segment gross billings was primarily due to higher billings of
Action Figures, Building Sets, Games, and Other, partially offset by lower
billings of Infant, Toddler, and Preschool.
Dolls gross billings increased 3%, of which 4% was due to higher billings of
Barbie products and 3% was due to initial billings of Spirit products. This was
partially offset by lower billings of Cave Club products of 4%.
Infant, Toddler, and Preschool gross billings decreased 11%, of which 10% was
due to lower billings of Fisher-Price and Thomas & Friends products, primarily
driven by lower billings of infant and newborn products.
Vehicles gross billings decreased 4%, of which 5% was due to lower billings of
Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 28% of
which 10% was due to initial billings of Masters of the Universe, 8% was due to
higher billings from Jurassic World, and 6% was due to higher billings from
plush.
Sales adjustments as a percentage of net sales was relatively consistent at
18.7% for the third quarter of 2021, as compared to 17.9% for the third quarter
of 2020.
                                                                            

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Cost of sales increased 14% in the third quarter of 2021, as compared to a 2%
increase in net sales, primarily due to higher product and other costs. Gross
margin in the third quarter of 2021 decreased, primarily due to cost inflation
partially offset by pricing actions. Negative factors, such as unfavorable
foreign exchange and product mix were largely offset by other factors including
incremental realized savings from the cost savings programs. International
segment income was $150.6 million in the third quarter of 2021, as compared to a
segment income of $186.4 million in the third quarter of 2020; the decrease was
primarily due to lower gross profit.
American Girl Segment
The following table provides a summary of Mattel's net sales, segment loss, and
gross billings for the American Girl segment for the third quarter of 2021 and
2020:

                                                    For the Three Months Ended                                                   Currency
                                               September 30,           September 30,              % Change as                 Exchange Rate
                                                   2021                    2020                    Reported                       Impact
                                                                         (In millions, except percentage information)
Net Sales                                    $         52.0          $         51.4                           1  %                           -  %
Segment Loss                                           (6.5)                   (9.3)                                                         -  %

American Girl Segment
Total Gross Billings                                   53.6                    53.7                           -  %                           -  %
Sales Adjustments                                      (1.6)                   (2.3)
Total Net Sales                              $         52.0          $         51.4                           1  %                           -  %


Gross billings for the American Girl segment were relatively flat at $53.6
million in the third quarter of 2021, as compared to $53.7 million in the third
quarter of 2020, primarily due to lower billings in the proprietary
direct-to-consumer channel and non-proprietary external distribution channels.
This was partially offset by higher billings in proprietary retail channels,
which were impacted in the third quarter of 2020 by retail store closures due to
the impact of COVID-19.
Sales adjustments as a percentage of net sales was 3.1% for the third quarter of
2021, as compared to 4.5% for the third quarter of 2020, due to lower wholesale
returns.
Cost of sales remained flat year-over-year, as compared to a 1% increase in net
sales, due to higher product and other costs offset by lower freight and
logistics expenses. Gross margin in the third quarter of 2021 was flat,
primarily due to product mix offset by input cost inflation. American Girl
segment loss was $6.5 million in the third quarter of 2021, as compared to
segment loss of $9.3 million in the third quarter of 2020. This improvement was
primarily due to lower selling and administrative expenses, partially offset by
higher advertising and promotion expenses.

                                                                            

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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 2021 and 2020:
                                                                      For 

the nine months ended

                                                    September 30, 2021                            September 30, 2020                               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                               $    3,662.9                      100.0  %       $  2,962.7                  100.0  %                          24  %                -
Gross profit                            $    1,742.4                       47.6  %       $  1,406.9                   47.5  %                          24  %               10
Advertising and promotion expenses             280.1                        7.6  %            239.0                    8.1  %                          17  %              (50)
Other selling and administrative
expenses                                       990.2                       27.0  %            981.2                   33.1  %                           1  %             (610)
Operating income                               472.1                       12.9  %            186.7                    6.3  %                         153  %              660
Interest expense                               220.7                        6.0  %            149.0                    5.0  %                          48  %              100
Interest (income)                               (2.2)                      -0.1  %             (3.6)                  -0.1  %                         -39  %                -
Other non-operating expense, net                 3.3                                            7.0
Income before income taxes                     250.2                        6.8  %             34.2                    1.2  %                         632  %              560
(Benefit) provision for income taxes          (415.8)                                          46.8
Income from equity method investments           11.1                                            7.1
Net Income (Loss)                       $      677.2                       18.5  %       $     (5.5)                  -0.2  %                            n/m            1,870


n/m - Not Meaningful
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 2021 and 2020:

                                                      For the Nine Months Ended                                                   Currency
                                                September 30,           September 30,              % Change as                 Exchange Rate
                                                    2021                    2020                    Reported                       Impact
                                                                          (In millions, except percentage information)
Gross Billings by Categories
Dolls                                         $      1,495.5          $      1,177.4                          27  %                           2  %
Infant, Toddler, and Preschool                         819.4                   749.0                           9  %                           1  %
Vehicles                                               871.6                   713.7                          22  %                           2  %
Action Figures, Building Sets, Games, and
Other                                                  903.7                   667.6                          35  %                           2  %
Gross Billings                                $      4,090.3          $      3,307.7                          24  %                           2  %
Sales Adjustments                                     (427.4)                 (345.0)
Net Sales                                     $      3,662.9          $      2,962.7                          24  %                           2  %

Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie                                        $      1,122.7          $        879.0                          28  %                           2  %
Hot Wheels                                             741.9                   607.9                          22  %                           2  %
Fisher-Price and Thomas & Friends                      763.0                   692.7                          10  %                           1  %
Other                                                1,462.6                 1,128.1                          30  %                           2  %
Gross Billings                                $      4,090.3          $      3,307.7                          24  %                           2  %



                                                                              41

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Gross billings were $4.09 billion in the first nine months of 2021, an increase
of $782.6 million or 24%, as compared to $3.31 billion in the first nine months
of 2020, with a favorable impact from changes in currency exchange rates of two
percentage points. The increase in gross billings for the first nine months of
2021 was due to higher billings across all categories.
Dolls gross billings increased 27%, of which 21% was due to higher billings of
Barbie products, primarily driven by positive brand momentum and POS, with 3%
due to initial billings of Spirit products.
Infant, Toddler, and Preschool gross billings increased 9%, which was due to
higher billings of Fisher-Price and Thomas & Friends, primarily driven by higher
billings of infant and newborn products.
Vehicles gross billings increased 22%, of which 19% was due to higher billings
of Hot Wheels products, driven by positive brand momentum and POS.
Action Figures, Building Sets, Games, and Other gross billings increased 35% due
to higher billings of the following products: 13% from Jurassic World, 11% from
initial billings of Masters of the Universe, 7% from plush, and 5% from MEGA.
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 as a percentage
of net sales was relatively consistent at 11.7% for the first nine months of
2021 as compared to 11.6% for the first nine months of 2020.
Cost of Sales
Cost of sales as a percentage of net sales was 52.4% in the first nine months of
2021, as compared to 52.5% in the first nine months of 2020. Cost of sales
increased by $364.7 million, or 23%, to $1.9 billion in the first nine months of
2021 from $1.6 billion in the first nine months of 2020, as compared to a 24%
increase in net sales. Within cost of sales, product and other costs increased
by $314.9 million, or 25%, to $1.6 billion in the first nine months of 2021 from
$1.3 billion in the first nine months of 2020; freight and logistics expenses
increased by $28.2 million, or 17%, to $195.8 million in the first nine months
of 2021 from $167.6 million in the first nine months of 2020; and royalty
expense increased by $21.6 million, or 20%, to $132.0 million in the first nine
months of 2021 from $110.3 million in the first nine months of 2020.
Gross Margin
Gross margin increased to 47.6% in the first nine months of 2021 from 47.5% in
the first nine months of 2020. The increase in gross margin was primarily due to
the favorable impact of fixed cost absorption and the incremental realized
savings from the cost savings programs, substantially offset by cost inflation
due to higher raw material and inbound freight costs.
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, newspaper inserts, fliers, and
mailers; and (iv) generic advertising costs, which include trade show costs.
Advertising and promotion expenses as a percentage of net sales decreased to
7.6% in the first nine months of 2021 from 8.1% in the first nine months of 2020
driven by a 24% increase in net sales as compared to an increase in advertising
and promotion expense of $41.1 million, or 17%. The increase in advertising and
promotion expense to $280.1 million in the first nine months of 2021 from $239.0
million in the first nine months of 2020 was due to higher media spend.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $990.2 million, or 27.0% of net
sales, in the first nine months of 2021, as compared to $981.2 million, or 33.1%
of net sales, in the first nine months of 2020. The increase in other selling
and administrative expenses was primarily due to higher employee compensation
costs, including comparisons to cost-savings actions taken in the prior year in
response to COVID-19, partially offset by incremental realized savings from the
cost savings programs.
                                                                            

42

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Interest Expense
Interest expense was $220.7 million in the first nine months of 2021, as
compared to $149.0 million in the first nine months of 2020. The increase in
interest expense was due to a loss on extinguishment of $101.7 million as a
result of the redemption of the 2017/2018 Senior Notes due December 2025 in the
first nine months of 2021. This was partially offset by lower interest expense
in the first nine months of 2021 due to the impact of the aggregate repayment of
the remaining 2025 Notes and a lower interest rate associated with the partial
refinancing of the 2025 Notes.
(Benefit) Provision for Income Taxes
Mattel's provision for income taxes was a benefit of $415.8 million for the nine
months ended September 30, 2021 and provision for income taxes was an expense of
$46.8 million for the nine months ended September 30, 2020. During the nine
months ended September 30, 2021, Mattel recognized a net discrete tax benefit of
$445.8 million primarily related to the release of valuation allowances on
certain U.S. and foreign deferred tax assets, as well as income taxes recorded
on a discrete basis in various jurisdictions, and reassessments of prior years'
tax liabilities. During the nine months ended September 30, 2020, Mattel
recognized a net discrete tax expense of $11.4 million primarily related to
income taxes recorded on a discrete basis in various jurisdictions and
reassessments of prior year's tax liabilities.
                                                                            

43

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Segment Results
North America Segment
The following table provides a summary of Mattel's net sales, segment income,
and gross billings by categories, along with supplemental information by brand,
for the North America segment for the first nine months of 2021 and 2020:

                                               For the Nine Months Ended                                                   Currency
                                           September 30,         September 30,             % Change as                  Exchange Rate
                                               2021                   2020                   Reported                       Impact
                                                                    (In millions, except percentage information)
Net Sales                                $      2,077.5          $   1,647.1                           26  %                           -  %
Segment Income                                    646.5                445.4                           45  %

Gross Billings by Categories
Dolls                                    $        698.4          $     523.6                           33  %                           -  %
Infant, Toddler, and Preschool                    520.2                466.2                           12  %                           1  %
Vehicles                                          457.8                356.2                           29  %                           1  %
Action Figures, Building Sets, Games,
and Other                                         543.3                414.8                           31  %                           -  %
Gross Billings                                  2,219.7              1,760.8                           26  %                           -  %
Sales Adjustments                                (142.2)              (113.8)
Net Sales                                $      2,077.5          $   1,647.1                           26  %                           -  %

Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie                                   $        617.1          $     477.7                           29  %                           -  %
Hot Wheels                                        383.5                296.8                           29  %                           -  %
Fisher-Price and Thomas & Friends                 476.1                423.2                           13  %                           1  %
Other                                             743.0                563.2                           32  %                           1  %
Gross Billings                           $      2,219.7          $   1,760.8                           26  %                           -  %


Gross billings for the North America segment were $2.22 billion in the first
nine months of 2021, an increase of $458.9 million, or 26%, as compared to $1.76
billion in the first nine months of 2020. The increase in the North America
segment gross billings was due to higher billings across all categories.
Dolls gross billings increased 33%, of which 26% was due to higher billings of
Barbie products and 4% was due to initial billings of Spirit products.
Infant, Toddler, and Preschool gross billings increased 12%, which was due to
higher billings of Fisher-Price and Thomas & Friends products.
Vehicles gross billings increased 29%, of which 25% was due to higher billings
of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 31% due
to higher billings of the following products: 13% from Jurassic World, 11% from
initial billings of Masters of the Universe, 7% from WWE, 7% from plush, and 5%
from MEGA. This was partially offset by lower billings of card games products,
including UNO of 6%.
Sales adjustments as a percentage of net sales was relatively consistent at 6.8%
for the first nine months of 2021, as compared to 6.9% for the first nine months
of 2020.
Cost of sales increased 23% during the first nine months of 2021, as compared to
a 26% increase in net sales, primarily due to higher product and other costs.
Gross margin in the first nine months of 2021 increased primarily due to fixed
cost absorption. Negative factors, such as input cost inflation due to higher
raw material and freight costs were largely offset by other factors including
the incremental realized savings from the cost savings programs. North America
segment income was $646.5 million in the first nine months of 2021, as compared
to segment income of $445.4 million in the first nine months of 2020; the
improvement was primarily due to higher gross profit, partially offset by higher
advertising and promotion expenses and higher selling and administrative
expenses.
                                                                            

44

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International Segment
The following table provides a summary of Mattel's net sales, segment income,
and gross billings by categories, along with supplemental information by brand,
for the International segment for the first nine months of 2021 and 2020:

                                                     For the Nine Months Ended                                                    Currency
                                               September 30,           September 30,              % Change as                  Exchange Rate
                                                   2021                    2020                     Reported                       Impact
                                                                         (In millions, except percentage information)
Net Sales                                    $      1,447.5          $      1,198.8                           21  %                           4  %
Segment Income                                        237.6                   155.0                           53  %

Gross Billings by Categories
Dolls                                        $        655.8          $        532.9                           23  %                           3  %
Infant, Toddler, and Preschool                        299.2                   282.8                            6  %                           4  %
Vehicles                                              413.7                   357.5                           16  %                           4  %
Action Figures, Building Sets, Games, and
Other                                                 360.4                   252.7                           43  %                           6  %
Gross Billings                               $      1,729.1          $      1,426.0                           21  %                           4  %
Sales Adjustments                                    (281.6)                 (227.2)
Net Sales                                    $      1,447.5          $      1,198.8                           21  %                           4  %

Supplemental Gross Billings Disclosure
Gross Billings by Top 3 Power Brands
Barbie                                       $        505.6          $        401.3                           26  %                           4  %
Hot Wheels                                            358.4                   311.1                           15  %                           3  %
Fisher-Price and Thomas & Friends                     286.9                   269.5                            6  %                           3  %
Other                                                 578.2                   444.1                           30  %                           4  %
Gross Billings                               $      1,729.1          $      1,426.0                           21  %                           4  %


Gross billings for the International segment were $1.73 billion in the first
nine months of 2021, an increase of $303.2 million, or 21%, as compared to $1.43
billion in the first nine months of 2020, with a favorable impact from changes
in currency exchange rates of four percentage points. The increase in the
International segment gross billings was due to higher billings across all
categories.
Dolls gross billings increased 23%, of which 20% was due to higher billings of
Barbie products and 3% was due to initial billings of Spirit products.
Infant, Toddler, and Preschool gross billings increased 6%, which was due to
higher billings of Fisher-Price and Thomas & Friends products.
Vehicles gross billings increased 16%, of which 13% was due to higher billings
of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings increased 43% due
to higher billings of the following products: 13% from initial billings of
Masters of the Universe, 12% from Jurassic World, 6% from MEGA, and 5% from
plush.
Sales adjustments as a percentage of net sales was relatively consistent at
19.5% for the first nine months of 2021, as compared to 18.9% for the first nine
months of 2020.
Cost of sales increased 24% in the first nine months of 2021, as compared to a
21% increase in net sales, primarily due to higher product and other costs.
Gross margin in the first nine months of 2021 decreased primarily due to cost
inflation partially offset by pricing actions. Other negative factors, such as
unfavorable foreign exchange and product mix were largely offset by incremental
realized savings from the cost savings programs and favorable impact of fixed
cost absorption. International segment income was $237.6 million in the first
nine months of 2021, as compared to segment income of $155.0 million in
the first nine months of 2020; the improvement was primarily due to higher net
sales, partially offset by higher advertising and promotion expenses.
                                                                            

45

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American Girl Segment
The following table provides a summary of Mattel's net sales, segment loss, and
gross billings for the American Girl segment for the first nine months of 2021
and 2020:

                                                   For the Nine Months Ended                                                    Currency
                                             September 30,           September 30,              % Change as                  Exchange Rate
                                                  2021                   2020                     Reported                       Impact
                                                                        (In millions, except percentage information)
Net Sales                                   $       137.8          $        116.8                           18  %                           -  %
Segment Loss                                        (25.8)                  (40.3)

American Girl Segment
Total Gross Billings                                141.4                   120.9                           17  %                           -  %
Sales Adjustments                                    (3.6)                   (4.1)
Total Net Sales                             $       137.8          $        116.8                           18  %                           -  %


Gross billings for the American Girl segment was $141.4 million in the first
nine months of 2021, an increase of $20.5 million, or 17%, as compared to $120.9
million in the first nine months of 2020. The increase in American Girl gross
billings was due to higher billings in propriety retail channels.
Sales adjustments as a percentage of net sales decreased to 2.6% for the first
nine months of 2021, as compared to 3.5% for the first nine months of 2020 due
to lower allowances for wholesale returns.
Cost of sales increased 16% in the first nine months of 2021, as compared to a
18% increase in net sales, primarily due to higher product and other costs.
Gross margin in the first nine months of 2021 increased slightly, primarily due
to the incremental realized savings from the cost savings programs and favorable
fixed cost absorption, substantially offset by product mix and input cost
inflation. American Girl segment loss was $25.8 million in the first nine
months of 2021, as compared to segment loss of $40.3 million in the first nine
months of 2020; the improvement was primarily due to higher net sales and lower
selling and administrative expenses.
Cost Savings Programs
Optimizing for Growth (formerly Capital Light)
On February 9, 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 incremental targeted gross cost
savings, approximately 50% is expected to benefit Cost of Sales, 40% to benefit
Other Selling and Administrative Expenses, and 10% to benefit Advertising and
Promotion Expense. Aggregate incremental cash expenditures associated with the
Program are expected to be approximately $100 to $125 million.
Mattel estimates the aggregate cost of incremental actions for the Program to be
as follows:
Optimizing for Growth - Incremental Actions                                   Estimate of Cost
Employee severance                                                           $40 to $50 million
Real estate/supply chain optimization and other restructuring costs          $15 to $20 million
Asset impairments and other non-cash charges                                 $25 to $30 million
Total estimated severance and restructuring costs                           $80 to $100 million
Information technology enhancements and other investments                    $45 to $55 million
Total estimated incremental charges                                         $125 to $155 million


                                                                              46

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Cumulatively, in conjunction with previous actions taken under the Capital Light
program, targeted annual gross cost savings for the Program are $325 million by
2023, with total expected cash expenditures of approximately $140 to $165
million, and total expected non-cash charges of $40 to $45 million. Of the $325
million in targeted gross cost savings, approximately 60% is expected to benefit
Cost of Sales, 30% to benefit Other Selling and Administrative Expenses, and 10%
to benefit Advertising and Promotion Expense.
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,
                                                                        2021                    2020
                                                                                (In millions)
Cost of sales (a)                                                 $          1.9          $          4.8
Other selling and administrative expenses (b)                               26.4                     6.4
                                                                  $         28.3          $         11.2


(a)Severance and other restructuring costs recorded within cost of sales in the
consolidated statements of operations are included in segment income (loss) in
Part 1, Item 1 "Note 22 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 Part 1, Item 1"Note 22 to the
Consolidated Financial Statements-Segment Information" of this Quarterly Report
on Form 10-Q.
As of September 30, 2021, Mattel has recorded cumulative severance and other
restructuring charges related to the Program of approximately $79 million, which
include approximately $20 million of non-cash charges. Mattel realized
cumulative cost savings (before severance, restructuring costs, and cost
inflation) of approximately $144 million, primarily within gross profit, as of
September 30, 2021 in connection with the Program.
During the three months ended March 31, 2021, in conjunction with the Program,
Mattel completed the sale of a manufacturing plant based in Mexico, which
included land and buildings, resulting in a pre-tax gain of $15.8 million.
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.
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 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 $148.5 million in cash and equivalents at September 30,
2021, approximately $141.2 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 comply
with its debt covenants and its senior secured revolving credit facilities
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" 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.
Current Market Conditions
Mattel is exposed to financial market risk resulting from changes in interest
and foreign currency exchange rates.
                                                                            

47

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Consistent with prior periods, Mattel intends to utilize its senior secured
revolving credit facilities to meet its short-term liquidity needs. At
September 30, 2021, Mattel had $128 million outstanding borrowings under the
senior secured revolving credit facilities and approximately $10 million in
outstanding letters of credit under the senior secured revolving credit
facilities.
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 Mattel's 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" 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 $255.9 million in the first nine
months of 2021, as compared to $442.0 million in the first nine months of 2020.
The decrease in cash flows used for operating activities was primarily due to
higher net income, excluding the impact of non-cash items.
Cash flows used for investing activities were $71.5 million in the first nine
months of 2021, as compared to $107.1 million in the first nine months of 2020.
The decrease in cash flows used for investing activities was primarily due to
proceeds from the disposal of assets and a business of $43.5 million in the
first nine months of 2021 and lower payments for foreign currency forward
exchange contracts in the first nine months of 2021, partially offset by an
increase in capital expenditures in the first nine months of 2021.
Cash flows used for financing activities were $279.9 million in the first nine
months of 2021, as compared to cash flows provided by financing activities of
$393.4 million in the first nine months of 2020. The change in cash flows from
financing activities was primarily due to the redemption of the 2017/2018 Senior
Notes due December 2025 in the first nine months of 2021 and lower net proceeds
from short-term borrowings as compared to 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.
                                                                            

48

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Financial Position
Mattel's cash and equivalents decreased $613.7 million to $148.5 million at
September 30, 2021, as compared to $762.2 million at December 31, 2020, due to
seasonal working capital usage, the aggregate repayment of the remaining
principal balance of the 2015 Notes and the costs associated with the partial
refinancing of the 2025 Notes, and capital expenditures. The decreases were
partially offset by net income excluding the impact of the release of valuation
allowances on certain U.S. and foreign deferred tax assets and proceeds from the
disposal of assets and a business during the first nine months of 2021. Mattel's
cash and equivalents decreased $303.7 million to $148.5 million at September 30,
2021, as compared to $452.2 million at September 30, 2020, primarily due to the
aggregate repayment of the remaining principal balance of the 2025 Notes and the
costs associated with the partial refinancing of the 2025 Notes in the first
nine months of 2021, the net repayment of short-term borrowings, and capital
expenditures, partially offset by cash flows from operating activities in the
trailing twelve months.
Accounts receivable increased $403.9 million to $1.4 billion at September 30,
2021, as compared to $1.03 billion at December 31, 2020, primarily due to the
seasonality of Mattel's business and higher net sales in the third quarter of
2021 as compared to the fourth quarter of 2020. Accounts receivable increased
$111.8 million to $1.4 billion at September 30, 2021, as compared to $1.3
billion at September 30, 2020, primarily due to higher net sales in the third
quarter of 2021.
Inventory increased $326.0 million to $854.5 million at September 30, 2021, as
compared to $528.5 million at December 31, 2020, primarily due to cost inflation
due to higher raw material cost and seasonal inventory build. Inventory
increased $175.0 million to $854.5 million at September 30, 2021, as compared to
$679.5 million at September 30, 2020, primarily due to cost inflation due to
higher raw material cost and higher inventory production levels.
Prepaid expenses and other current assets increased $102.2 million to $274.3
million at September 30, 2021, as compared to $172.1 million at December 31,
2020, due to receivables from insurers related to a legal settlement. Prepaid
expenses and other current assets increased $116.3 million to $274.3 million at
September 30, 2021, as compared to $157.9 million at September 30, 2020, due to
receivables from insurers related to a legal settlement.
Accounts payable and accrued liabilities increased $129.9 million to $1.46
billion at September 30, 2021, as compared to $1.33 billion at December 31,
2020, due to an accrued legal settlement and increased payables associated with
cost inflation. Accounts payable and accrued liabilities increased $229.0
million to $1.46 billion at September 30, 2021, as compared to $1.23 billion at
September 30, 2020, due to increased payables associated with cost inflation and
an accrued legal settlement.
Mattel had $128.0 million, $400.0 million, and $1.0 million of short-term
borrowings outstanding at September 30, 2021, September 30, 2020, and
December 31, 2020, respectively. Mattel elevated its borrowings under the senior
secured revolving credit facilities during 2020 in light of uncertainties
surrounding the impact of COVID-19.
A summary of Mattel's capitalization is as follows:
                                                              September 30, 2021                           September 30, 2020                 December 

31, 2020

                                                                                    (In millions, except percentage information)
Cash and equivalents                           $           148.5                                      $    452.2                         $    762.2

Short-term borrowings                                      128.0                                           400.0                                1.0
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
2017/2018 Senior Notes due December 2025                       -                                         1,500.0                            1,500.0
2019 Senior Notes due December 2027                        600.0                                           600.0                              600.0
2021 Senior Notes due April 2026                           600.0                                               -                                  -
2021 Senior Notes due April 2029                           600.0                                               -                                  -
Debt issuance costs and debt discount                      (30.2)                                          (47.2)                             (45.3)
Total debt                                               2,697.8                          67  %          3,252.8             89  %          2,855.7             82  %
Stockholders' equity                                     1,313.7                          33               419.8             11               610.1             18
Total capitalization (debt plus equity)        $         4,011.5                         100  %       $  3,672.6            100  %       $  3,465.8            100  %


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On March 19, 2021, Mattel used the net proceeds from the issuance of $600.0
million aggregate principal amount of 3.375% Senior Notes due 2026 and $600.0
million aggregate principal amount of 3.750% Senior Notes due 2029, together
with cash on hand, to redeem and retire $1.225 billion in aggregate principal
amount of Mattel's outstanding 2017/2018 Senior Notes due December 2025 (the
"2025 Notes") and pay related prepayment premiums and transaction fees and
expenses.
On July 1, 2021, Mattel redeemed the remaining outstanding $275 million
aggregate principal amount of the 2025 Notes, at a redemption price equal to
105.063% of the principal amount. As a result of this 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.
Total debt, including short-term borrowings, was $2.70 billion at September 30,
2021, as compared to $2.86 billion at December 31, 2020. The decrease was due to
the aggregate repayments of the remaining 2025 Notes, partially offset by the
short-term borrowings of $128.0 million outstanding at September 30, 2021.
Total debt, including short-term borrowings, was $2.70 billion at September 30,
2021, as compared to $3.25 billion at September 30, 2020. The decrease was due
to the aggregate repayments of the remaining 2025 Notes and net reduction of
short-term borrowings of $272.0 million.
Stockholders' equity increased $703.5 million to $1.31 billion at September 30,
2021, as compared to $610.1 million at December 31, 2020, primarily due to the
net income for the first nine months of 2021. Stockholders' equity increased
$893.9 million to $1.31 billion at September 30, 2021, as compared to $419.8
million at September 30, 2020, primarily due to net income for the trailing
twelve months.
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
An update to a critical accounting estimate involving Mattel's income taxes is
described in Part I, Item 1 "Financial Statements-Note 20 to the Consolidated
Financial Statements-Income Taxes". With the exception of this topic, Mattel's
critical accounting policies and estimates are included in the 2020 Annual
Report on Form 10-K and did not materially change during the first nine months
of 2021.
New Accounting Pronouncements
See Part I, Item 1 "Financial Statements-Note 23 to the Consolidated Financial
Statements-New Accounting Pronouncements" of this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measure
To supplement the financial results presented in accordance with U.S. GAAP,
Mattel presents a non-GAAP financial measure within the meaning of Regulation G
promulgated by the SEC. The non-GAAP financial measure that Mattel presents is
currency exchange rate impact. Mattel uses this measure to analyze its
continuing operations and to monitor, assess, and identify meaningful trends in
its operating and financial performance. Mattel believes that the disclosure of
this non-GAAP financial measure provides useful supplemental information to
investors to be able to better evaluate ongoing business performance and certain
components of Mattel's results. This measure is not, and should not be viewed
as, a substitute for GAAP financial measures and may not be comparable to
similarly-titled measures used by other companies.
Currency Exchange Rate Impact
The currency exchange rate impact reflects the portion (expressed as a
percentage) of changes in Mattel's reported results that are attributable to
fluctuations in currency exchange rates.
For entities reporting in currencies other than the U.S. dollar, Mattel
calculates the percentage change of period-over-period results at constant
currency exchange rates (established as described below) by translating current
period and prior period results using these rates. 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.
                                                                            

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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 not
associated with categories, brands, and individual products.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Rate Risk
Currency exchange rate fluctuations impact Mattel's results of operations and
cash flows. Inventory transactions denominated in the Euro, Mexican peso,
Australian dollar, British pound sterling, Canadian dollar, Russian ruble, and
Brazilian real were the primary transactions that caused foreign currency
transaction exposure for Mattel during the first nine months of 2021. Mattel
seeks to mitigate its exposure to market risk by monitoring its foreign currency
transaction exposure for the year and partially hedging such exposure using
foreign currency forward exchange contracts primarily to hedge its purchase and
sale of inventory and other intercompany transactions denominated in foreign
currencies. These contracts generally have maturity dates of up to 18 months.
For those intercompany receivables and payables that are not hedged, the
transaction gains or losses are recorded in the consolidated statements of
operations in the period in which the exchange rate changes as part of operating
income or other non-operating expense, net based on the nature of the underlying
transaction. Transaction gains or losses on hedged intercompany inventory
transactions are recorded in the consolidated statements of operations in the
period in which the inventory is sold to customers. In addition, Mattel manages
its exposure to currency exchange rate fluctuations through the selection of
currencies used for international borrowings. Mattel does not trade in financial
instruments for speculative purposes.
Mattel's financial position is also impacted by currency exchange rate
fluctuations on translation of its net investments in subsidiaries with non-U.S.
dollar functional currencies. Assets and liabilities of subsidiaries with
non-U.S. dollar functional currencies are translated into U.S. dollars at fiscal
period-end exchange rates. Income, expense, and cash flow items are translated
at weighted-average exchange rates prevailing during the fiscal period. The
resulting currency translation adjustments are recorded as a component of
accumulated other comprehensive loss within stockholders' equity. Mattel's
primary currency translation adjustments for the nine months ended September 30,
2021 were related to its net investments in entities having functional
currencies denominated in the Mexican peso, Chilean peso, Turkish lira, British
pound sterling, and the Euro.
There are numerous factors impacting the amount by which Mattel's financial
results are affected by foreign currency translation and transaction gains and
losses resulting from changes in currency exchange rates, including, but not
limited to, the level of foreign currency forward exchange contracts in place at
a given time and the volume of foreign currency-denominated transactions in a
given period. However, assuming that such factors were held constant, Mattel
estimates that a 1 percent change in the U.S. dollar would have impacted
Mattel's third quarter net sales by approximately 0.4% and its third quarter net
income per share by approximately $0.00 to $0.01.
                                                                            

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United Kingdom Operations
During June 2016, the referendum by British voters to exit the EU ("Brexit")
adversely impacted global markets and resulted in a sharp decline of the British
pound sterling against the U.S. dollar. In February 2017, the British Parliament
voted in favor of allowing the British government to begin the formal process of
Brexit and discussions with the EU began in March 2017. On January 29, 2020, the
British Parliament approved a withdrawal agreement, and the United Kingdom
("U.K.") officially withdrew from the EU on January 31, 2020 and entered into a
transition period that ended on December 31, 2020.
On December 24, 2020, the U.K. and EU agreed upon The EU-UK Trade and
Cooperation Agreement. The agreement was provisionally applicable beginning
January 1, 2021 and sets new rules and arrangements between the U.K. and EU in
areas such as the trade of goods and services, intellectual property,
transportation, and more. As a result of the agreement, the U.K. is no longer
considered a member of the EU Single Market and Customs Union and exited all EU
policies and trade agreements. The transfer of goods between the U.K. and EU is
subject to additional inspections and checkpoints causing possible delays in the
movement of inventory.
On April 27, 2021, the European Parliament gave final approval to the EU-UK
Trade and Cooperation Agreement, and on April 29, 2021, the EU approved the
conclusion of the agreement by way of a Council Decision. As a result, the
agreements between the U.K. and the EU came into effect on May 1, 2021. This was
the last official step in formalizing the new relationship between the U.K. and
the EU. Although the agreement has mitigated a portion of the risk that arose
due to the U.K.'s withdrawal from the EU, the overall impact on Mattel's
operations is still being evaluated, including the volatility of the British
pound sterling. Mattel's U.K. operations represented approximately 6% of
Mattel's consolidated net sales for the nine months ended September 30, 2021.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2021, Mattel's disclosure controls and procedures were
evaluated, with the participation of Mattel's principal executive officer and
principal financial officer, to assess whether they are effective in providing
reasonable assurance that information required to be disclosed by Mattel in the
reports that it files or submits under the Securities Exchange Act of 1934, as
amended, is accumulated and communicated to management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure and to provide reasonable
assurance that such information is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Based on this evaluation, Ynon Kreiz, Mattel's principal
executive officer, and Anthony DiSilvestro, Mattel's principal financial
officer, concluded that these disclosure controls and procedures were effective
to provide reasonable assurance as of September 30, 2021.

Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting that occurred
during the quarter ended September 30, 2021 that have materially affected, or
are reasonably likely to materially affect, Mattel's internal control over
financial reporting.

                                                                            

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