Mattel Inc 10-Q for FY2023 Q1
Mattel Inc (MAT)
10-Q
2023-05-02
For: 2023-03-31
View Original
Added on
April 10, 2026
About this 10-Q
Mattel Inc filed this 10-Q on May 2, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $814.58M
- down 21.8% from $1.04B a year earlier
- Net loss
- $106.47M
- compared with net income of $21.45M a year earlier
- Diluted EPS
- -$0.30
- compared with $0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 10-Q
___________________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended | ||||||||
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to | |||||
Commission File Number 001-05647
___________________________________________________________
MATTEL, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(310 ) 252-2000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report):
__________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares outstanding of registrant's common stock, $1.00 par value, as of April 17, 2023: 353,956,791 shares
1
MATTEL, INC. AND SUBSIDIARIES
| Page | ||||||||
| PART I | ||||||||
| PART II | ||||||||
2
(Cautionary Note Regarding Forward-Looking Statements)
Mattel cautions investors that this Quarterly Report on Form 10-Q includes forward-looking statements, which are statements that relate to the future and are, by their nature, uncertain. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. The use of words such as "anticipates," "expects," "intends," "plans," "projects," "looks forward," "confident that," "believes," and "targeted," among others, generally identify forward-looking statements. These forward-looking statements are based on currently available operating, financial, economic, and other information and assumptions, and are subject to a number of significant risks and uncertainties. A variety of factors, many of which are beyond Mattel's control, could cause actual future results to differ materially from those projected in the forward-looking statements. Specific factors that might cause such a difference include, but are not limited to: (i) Mattel's ability to design, develop, produce, manufacture, source, ship, and distribute products on a timely and cost-effective basis; (ii) sufficient interest in and demand for the products and entertainment Mattel offers by retail customers and consumers to profitably recover Mattel's costs; (iii) downturns in economic conditions affecting Mattel's markets which can negatively impact retail customers and consumers, and which can result in lower employment levels and lower consumer disposable income and spending, including lower spending on purchases of Mattel's products; (iv) other factors which can lower discretionary consumer spending, such as higher costs for fuel and food, drops in the value of homes or other consumer assets, and high levels of consumer debt; (v) potential difficulties or delays Mattel may experience in implementing cost savings and efficiency enhancing initiatives; (vi) other economic and public health conditions or regulatory changes in the markets in which Mattel and its customers and suppliers operate, which could create delays or increase Mattel's costs, such as higher commodity prices, labor costs or transportation costs, or outbreaks of disease; (vii) the effect of inflation on Mattel's business, including cost inflation in supply chain inputs and increased labor costs, as well as pricing actions taken in an effort to mitigate the effects of inflation; (viii) currency fluctuations, including movements in foreign exchange rates, which can lower Mattel's net revenues and earnings, and significantly impact Mattel's costs; (ix) the concentration of Mattel's customers, potentially increasing the negative impact to Mattel of difficulties experienced by any of Mattel's customers, such as bankruptcies or liquidations or a general lack of success, or changes in their purchasing or selling patterns; (x) the inventory policies of Mattel's retail customers, as well as the concentration of Mattel's revenues in the second half of the year, which coupled with reliance by retailers on quick response inventory management techniques, increases the risk of underproduction, overproduction, and shipping delays; (xi) legal, reputational, and financial risks related to security breaches or cyberattacks; (xii) work disruptions, including as a result of supply chain disruption such as plant or port closures, which may impact Mattel's ability to manufacture or deliver product in a timely and cost-effective manner; (xiii) the impact of competition on revenues, margins, and other aspects of Mattel's business, including the ability to offer products that consumers choose to buy instead of competitive products, the ability to secure, maintain, and renew popular licenses from licensors of entertainment properties, and the ability to attract and retain talented employees and adapt to evolving workplace models; (xiv) the risk of product recalls or product liability suits and costs associated with product safety regulations; (xv) changes in laws or regulations in the United States and/or in other major markets, such as China, in which Mattel operates, including, without limitation, with respect to taxes, tariffs, trade policies, or product safety, which may increase Mattel's product costs and other costs of doing business, and reduce Mattel's earnings and liquidity; (xvi) business disruptions or other unforeseen impacts due to economic instability, political instability, civil unrest, armed hostilities (including the impact of the war in Ukraine), natural and man-made disasters, pandemics or other public health crises, such as the COVID-19 pandemic, or other catastrophic events; (xvii) failure to realize the planned benefits from any investments or acquisitions made by Mattel; (xviii) the impact of other market conditions or third party actions or approvals, including those that result in any significant failure, inadequacy, or interruption from vendors or outsourcers, which could reduce demand for Mattel's products, delay or increase the cost of implementation of Mattel's programs, or alter Mattel's actions and reduce actual results; (xix) changes in financing markets or the inability of Mattel to obtain financing on attractive terms; (xx) the impact of litigation, arbitration, or regulatory decisions or settlement actions; (xxi) Mattel's ability to navigate regulatory frameworks in connection with new areas of investment, product development, or other business activities, such as non-fungible tokens and cryptocurrency; and (xxii) other risks and uncertainties detailed in Part I, Item 1A "Risk Factors" in Mattel's 2022 Annual Report on Form 10-K (the "2022 Annual Report on Form 10-K"), and subsequent periodic filings. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so, except as required by law.
3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||
| (Unaudited; in thousands, except share data) | |||||||||||||||||
| ASSETS | |||||||||||||||||
| Current Assets | |||||||||||||||||
| Cash and equivalents | $ | $ | $ | ||||||||||||||
Accounts receivable, net of allowances for credit losses of $ | |||||||||||||||||
| Inventories | |||||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Noncurrent Assets | |||||||||||||||||
| Property, plant, and equipment, net | |||||||||||||||||
| Right-of-use assets, net | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Deferred income tax assets | |||||||||||||||||
| Intangible assets, net | |||||||||||||||||
| Other noncurrent assets | |||||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||
| Current Liabilities | |||||||||||||||||
| Current portion of long-term debt | $ | $ | $ | ||||||||||||||
| Accounts payable | |||||||||||||||||
| Accrued liabilities | |||||||||||||||||
| Income taxes payable | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Noncurrent Liabilities | |||||||||||||||||
| Long-term debt | |||||||||||||||||
| Noncurrent lease liabilities | |||||||||||||||||
| Other noncurrent liabilities | |||||||||||||||||
| Total noncurrent liabilities | |||||||||||||||||
| Stockholders' Equity | |||||||||||||||||
Common stock $ | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
Treasury stock at cost: | ( | ( | ( | ||||||||||||||
| Retained earnings | |||||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ( | ||||||||||||||
| Total stockholders' equity | |||||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||||||||||||
| (Unaudited; in thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Net Sales | $ | $ | |||||||||||||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||||||||||||||
| Advertising and promotion expenses | |||||||||||||||||||||||||||||||||||
| Other selling and administrative expenses | |||||||||||||||||||||||||||||||||||
| Operating (Loss) Income | ( | ||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||
| Interest (income) | ( | ( | |||||||||||||||||||||||||||||||||
| Other non-operating (income) expense, net | ( | ||||||||||||||||||||||||||||||||||
| (Loss) Income Before Income Taxes | ( | ||||||||||||||||||||||||||||||||||
| (Benefit) Provision for income taxes | ( | ||||||||||||||||||||||||||||||||||
| (Income) from equity method investments | ( | ( | |||||||||||||||||||||||||||||||||
| Net (Loss) Income | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net (Loss) Income Per Common Share - Basic | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Weighted-average number of common shares | |||||||||||||||||||||||||||||||||||
| Net (Loss) Income Per Common Share - Diluted | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Weighted-average number of common and potential common shares | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (Unaudited; in thousands) | |||||||||||||||||||||||
| Net (Loss) Income | $ | ( | $ | ||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | |||||||||||||||||||||||
| Currency translation adjustments | |||||||||||||||||||||||
| Employee benefit plan adjustments | |||||||||||||||||||||||
| Available-for-sale security adjustments | |||||||||||||||||||||||
| Net unrealized (losses) gains on derivative instruments: | |||||||||||||||||||||||
| Unrealized holding (losses) gains | ( | ||||||||||||||||||||||
| Reclassification adjustments included in net income | ( | ( | |||||||||||||||||||||
| ( | |||||||||||||||||||||||
| Other Comprehensive Income, Net of Tax | |||||||||||||||||||||||
| Comprehensive (Loss) Income | $ | ( | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (Unaudited; in thousands) | |||||||||||
| Cash Flows From Operating Activities: | |||||||||||
| Net (Loss) Income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash flows used for operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Share-based compensation | |||||||||||
| Bad debt expense | |||||||||||
| Inventory obsolescence | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Income from equity method investments | ( | ( | |||||||||
| Gain on sale of assets, net | ( | ( | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable, accrued liabilities, and income taxes payable | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash flows used for operating activities | ( | ( | |||||||||
| Cash Flows From Investing Activities: | |||||||||||
| Purchases of tools, dies, and molds | ( | ( | |||||||||
| Purchases of other property, plant, and equipment | ( | ( | |||||||||
| Proceeds from (payments of) foreign currency forward exchange contracts, net | ( | ||||||||||
| Proceeds from sale of assets | |||||||||||
| Other, net | ( | ||||||||||
| Net cash flows used for investing activities | ( | ( | |||||||||
| Cash Flows From Financing Activities: | |||||||||||
| Share repurchases | ( | ||||||||||
| Tax withholdings for share-based compensation | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash flows used for financing activities | ( | ( | |||||||||
| Effect of Currency Exchange Rate Changes on Cash and Equivalents | |||||||||||
| Decrease in Cash and Equivalents | ( | ( | |||||||||
| Cash and Equivalents at Beginning of Period | |||||||||||
| Cash and Equivalents at End of Period | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| (Unaudited; in thousands) | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Share repurchases | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of treasury stock for stock option exercises | — | ( | — | — | |||||||||||||||||||||||||||||||
| Issuance of treasury stock for restricted stock units vesting | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| (Unaudited; in thousands) | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of treasury stock for stock option exercises | — | ( | — | — | |||||||||||||||||||||||||||||||
| Issuance of treasury stock for restricted stock units vesting | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Adjustment of accumulated other comprehensive loss to retained earnings for available-for-sale securities | — | — | — | ( | |||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The December 31, 2022 balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the consolidated financial statements do not include all of the annual disclosures required by GAAP. As Mattel's business is seasonal, results for interim periods are not necessarily indicative of those that may be expected for a full year. The financial information included herein should be read in conjunction with Mattel's consolidated financial statements and related notes in the 2022 Annual Report on Form 10-K.
2. Accounts Receivable, Net
3. Inventories
Inventories included the following:
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Raw materials and work in process | $ | $ | $ | ||||||||||||||
| Finished goods | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
4. Property, Plant, and Equipment, Net
Property, plant, and equipment, net included the following:
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Land | $ | $ | $ | ||||||||||||||
| Buildings | |||||||||||||||||
| Machinery and equipment | |||||||||||||||||
| Software | |||||||||||||||||
| Tools, dies, and molds | |||||||||||||||||
| Leasehold improvements | |||||||||||||||||
| Construction in progress | |||||||||||||||||
| Less: accumulated depreciation | ( | ( | ( | ||||||||||||||
| $ | $ | $ | |||||||||||||||
9
5. Goodwill and Intangible Assets, Net
Goodwill
Goodwill is allocated to various reporting units, which are at the operating segment level, for the purpose of evaluating whether goodwill is impaired. Mattel's reporting units are: (i) North America, (ii) International, and (iii) American Girl. Components of the operating segments have been aggregated into a single reporting unit as the components have similar economic characteristics. The similar economic characteristics include the nature of the products, the nature of the production processes, the customers, and the manner in which the products are distributed. Mattel tests its goodwill for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value.
The change in the carrying amount of goodwill by reporting unit for the three months ended March 31, 2023 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America reporting unit selling those brands, thereby causing a foreign currency translation impact.
| December 31, 2022 | Currency Exchange Rate Impact | March 31, 2023 | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| North America | $ | $ | $ | ||||||||||||||||||||
| International | |||||||||||||||||||||||
| American Girl | |||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||
Intangible Assets, Net
Amortizable intangible assets were $417.9 million, net of accumulated amortization of $378.3 million, $463.8 million, net of accumulated amortization of $336.3 million, and $425.1 million, net of accumulated amortization of $364.9 million as of March 31, 2023, March 31, 2022, and December 31, 2022, respectively.
Mattel's amortizable intangible assets primarily consist of trademarks and trade names. Mattel tests its amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Mattel's amortizable intangible assets were no
6. Accrued Liabilities
Accrued liabilities included the following:
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Advertising and promotion | $ | $ | $ | ||||||||||||||
| Deferred income | |||||||||||||||||
| Royalties | |||||||||||||||||
| Incentive compensation | |||||||||||||||||
10
7. Supplier Finance Program
8. Seasonal Financing
On September 15, 2022, Mattel entered into a revolving credit agreement (the "Credit Agreement") as the borrower with Bank of America, N.A., as administrative agent, and the other lenders and financial institutions party thereto, providing for a senior secured revolving credit facility in an aggregate principal amount of $1.40 billion (the "Revolving Credit Facility"). The Revolving Credit Facility will mature on September 15, 2025. In connection with the entry into the Credit Agreement, Mattel terminated the commitments and satisfied all outstanding obligations under the previous credit agreement, dated December 20, 2017 (as amended).
Borrowings under the Revolving Credit Facility bear interest at a floating rate, which can be either, at Mattel's option, (i) adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.125 % to 2.000 % per annum or (ii) an alternate base rate plus an applicable margin ranging from 0.125 % to 1.000 % per annum, in each case, such applicable margins to be determined based on Mattel's debt ratings.
In addition to paying interest on the outstanding principal under the Revolving Credit Facility, Mattel is required to pay (i) an unused line fee per annum of the average daily unused portion of the Revolving Credit Facility, (ii) a letter of credit fronting fee based on a percentage of the aggregate face amount of outstanding letters of credit, and (iii) certain other customary fees and expenses of the lenders and agents.
The obligations of Mattel under the Revolving Credit Facility are guaranteed by each domestic subsidiary of Mattel that guarantees any of Mattel's senior unsecured notes (collectively, the "Guarantors"). If Mattel achieves a debt rating of BBB-, Baa3, and/or BBB- (or higher) from any two of S&P, Moody's, and Fitch, respectively, and no event of default has occurred and is continuing at such time and Mattel provides a certification regarding the foregoing to the administrative agent (a "Fall-Away Event"), the obligations of Mattel under the Revolving Credit Facility will instead be required to be guaranteed by each existing and future direct and indirect domestic subsidiary of Mattel only to the extent such subsidiary guarantees other indebtedness of Mattel in an aggregate principal or committed amount in excess of $50 million.
The Revolving Credit Facility is secured by liens on substantially all of Mattel's and the Guarantors' present and after-acquired assets (subject to certain exceptions), including domestic accounts receivable, inventory, certain trademarks and patents, and certain equity interests in direct material subsidiaries of Mattel and the Guarantors. If a Fall-Away Event occurs, all collateral securing the Revolving Credit Facility will be permanently released.
The Credit Agreement contains customary covenants, including, but not limited to, restrictions on Mattel's and its subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances, or investments, pay dividends, sell or otherwise dispose of assets, amend organizational documents, change accounting policies or reporting practices, or enter into negative pledges with respect to assets that constitute collateral. The restrictive covenants also contain customary exceptions, including the uncapped ability to make investments and pay dividends if, in each case, the pro forma total leverage ratio after giving effect to such investment or dividend will be at least 0.25 to 1.00 inside the then-applicable total leverage ratio financial covenant level. Further, if a Fall-Away Event occurs, the restrictive covenants governing investments, dividends, negative pledges, and changes in accounting policies or reporting practices will no longer apply.
The Credit Agreement requires the maintenance of (a) an interest coverage ratio of not less than 2.75 to 1.00 as of the end of each fiscal quarter and (b) a total leverage ratio as of the end of each fiscal quarter, not to exceed 4.25 to 1.00 as of the end of the fiscal quarter ending March 31, 2023, with an additional step down to 3.75 to 1.00 to occur as of the end of the fiscal quarter ending June 30, 2023, as described below.
11
As of March 31, 2023, Mattel had no borrowings outstanding under the Revolving Credit Facility and no other short-term borrowings outstanding. As of March 31, 2022, Mattel had no borrowings outstanding under the previous senior secured revolving credit facilities and no other short-term borrowings outstanding. As of December 31, 2022, Mattel had no borrowings outstanding under the Revolving Credit Facility and no other short-term borrowings outstanding. Outstanding letters of credit under the Revolving Credit Facility totaled approximately $8 million as of March 31, 2023. Outstanding letters of credit under the previous senior secured revolving credit facilities totaled approximately $10 million as of March 31, 2022. Outstanding letters of credit under the Revolving Credit Facility totaled approximately $8 million as of December 31, 2022.
As of March 31, 2023, Mattel was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement is a material agreement, and failure to comply with its covenants may result in an event of default under the terms of the Revolving Credit Facility. If Mattel were to default under the terms of the Revolving Credit Facility, its ability to meet its seasonal financing requirements could be adversely affected.
In April 2023, S&P upgraded Mattel’s debt rating from BB+ to BBB- and maintained a positive outlook, and in November 2022, Moody’s previously upgraded Mattel’s debt rating from Ba1 to Baa3. On April 27, 2023, Mattel provided a certification of the foregoing to the administrative agent under the Credit Agreement, which resulted in the occurrence of a Fall-Away Event.
As a result of the Fall-Away Event, all guarantee obligations of the Guarantors under the Revolving Credit Facility were released, and the obligations of Mattel under the Revolving Credit Facility will be required to be guaranteed by each existing and future direct and indirect domestic subsidiary of Mattel only to the extent such subsidiary guarantees other indebtedness of Mattel in an aggregate principal or committed amount in excess of $50 million. Additionally, all collateral securing the Revolving Credit Facility was permanently released; the restrictive covenants governing investments, dividends, negative pledges, and changes in accounting policies or reporting practices no longer apply; and the total leverage ratio financial covenant will require maintenance of a total leverage ratio as of the end of each fiscal quarter not to exceed 3.75 to 1.00.
9. Long-Term Debt
Long-term debt included the following:
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| 2010 Senior Notes due October 2040 | $ | $ | $ | ||||||||||||||
| 2011 Senior Notes due November 2041 | |||||||||||||||||
| 2013 Senior Notes due March 2023 | |||||||||||||||||
| 2019 Senior Notes due December 2027 | |||||||||||||||||
| 2021 Senior Notes due April 2026 | |||||||||||||||||
| 2021 Senior Notes due April 2029 | |||||||||||||||||
| Debt issuance costs and debt discount | ( | ( | ( | ||||||||||||||
| $ | $ | $ | |||||||||||||||
| Less: current portion | ( | ||||||||||||||||
| Total long-term debt | $ | $ | $ | ||||||||||||||
On December 30, 2022, Mattel used cash on hand to redeem and retire the $250 million aggregate principal amount of the 2013 Senior Notes due March 2023.
Mattel's 2019 Senior Notes due 2027 were issued pursuant to an indenture dated November 20, 2019, and its 2021 Senior Notes due 2026 and 2021 Senior Notes due 2029 were issued pursuant to an indenture dated March 19, 2021. These indentures contain covenants that limit Mattel's (and some of its subsidiaries') ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make investments in unrestricted subsidiaries; (iv) create liens; (v) enter into certain sale/leaseback transactions; (vi) merge or consolidate, or sell, transfer or otherwise dispose of substantially all of their assets; and (vii) designate subsidiaries as unrestricted. The indentures also provided that certain of these covenants would be suspended if Mattel achieved a debt rating of BBB-, Baa3, and/or BBB- (or higher) from any two of S&P, Moody's, and Fitch, respectively, and no event of default has occurred.
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10. Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss):
| For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| Derivative Instruments | Available-for-Sale Security | Employee Benefit Plans | Currency Translation Adjustments | Total | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Net (decrease) increase in other comprehensive income | ( | ||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
| For the Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||
| Derivative Instruments | Available-for-Sale Security | Employee Benefit Plans | Currency Translation Adjustments | Total | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2021 | $ | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ||||||||||||||||||||||||||||
| Net increase in other comprehensive income | |||||||||||||||||||||||||||||
| Adjustment of accumulated other comprehensive loss to retained earnings | |||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
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The following table presents the classification and amount of the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations:
| For the Three Months Ended | |||||||||||||||||
| March 31, 2023 | March 31, 2022 | Statements of Operations Classification | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Derivative Instruments: | |||||||||||||||||
| Gain on foreign currency forward exchange and other contracts | $ | $ | Cost of sales | ||||||||||||||
| Tax effect | ( | (Benefit) Provision for income taxes | |||||||||||||||
| $ | $ | Net (Loss) Income | |||||||||||||||
| Employee Benefit Plans: | |||||||||||||||||
| Amortization of prior service credit (a) | $ | $ | Other non-operating (income) expense, net | ||||||||||||||
| Recognized actuarial loss (a) | ( | ( | Other non-operating (income) expense, net | ||||||||||||||
| ( | ( | ||||||||||||||||
| Tax effect | (Benefit) Provision for income taxes | ||||||||||||||||
| $ | ( | $ | ( | Net (Loss) Income | |||||||||||||
(a)The amortization of prior service credit and recognized actuarial loss are included in the computation of net periodic benefit cost. Refer to "Note 15 to the Consolidated Financial Statements—Employee Benefit Plans" for additional information regarding Mattel's net periodic benefit cost.
During the three months ended March 31, 2022, Mattel adjusted accumulated other comprehensive loss by $6.4 million in relation to previously recorded available-for-sale equity securities. This amount was adjusted in order to account for such securities in a manner consistent with ASC 321, Investments—Equity Securities. The adjustment included $3.6 million of accumulated other comprehensive loss reclassified to other non-operating expense (income), net in the consolidated statement of operations and $2.8 million reclassified to retained earnings in the consolidated statement of stockholders' equity. The adjustment, including tax effect, was immaterial to the financial statements.
Currency Translation Adjustments
During the three months ended March 31, 2023, currency translation adjustments resulted in a net gain of $28.1 million, primarily due to the strengthening of the Mexican peso, British pound sterling, Chilean peso, and Brazilian real against the U.S. dollar, offset by the weakening of the Russian ruble against the U.S. dollar.
During the three months ended March 31, 2022, currency translation adjustments resulted in a net gain of $0.9 million, primarily due to the strengthening of the Brazilian real, Mexican peso, and the Chilean peso against the U.S. dollar, offset by the weakening of the British pound sterling and the Russian ruble against the U.S. dollar.
11. Foreign Currency Transaction Exposure
Currency transaction gains (losses) included in the consolidated statements of operations were as follows:
| For the Three Months Ended | |||||||||||||||||
| March 31, 2023 | March 31, 2022 | Statements of Operations Classification | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Currency transaction gains | $ | $ | Operating income | ||||||||||||||
| Currency transaction gains (losses) | ( | Other non-operating income/expense, net | |||||||||||||||
| Currency transaction gains (losses), net | $ | $ | ( | ||||||||||||||
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12. Derivative Instruments
15
The following tables present Mattel's derivative assets and liabilities:
| Derivative Assets | |||||||||||||||||||||||
| Balance Sheet Classification | Fair Value | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts | Prepaid expenses and other current assets | $ | $ | $ | |||||||||||||||||||
| Foreign currency forward exchange and other contracts | Other noncurrent assets | ||||||||||||||||||||||
| Total Derivatives Designated as Hedging Instruments | $ | $ | $ | ||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts | Prepaid expenses and other current assets | $ | $ | $ | |||||||||||||||||||
| Total Derivatives Not Designated as Hedging Instruments | $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||
| Derivative Liabilities | |||||||||||||||||||||||
| Balance Sheet Classification | Fair Value | ||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts | Accrued liabilities | $ | $ | $ | |||||||||||||||||||
| Foreign currency forward exchange and other contracts | Other noncurrent liabilities | ||||||||||||||||||||||
| Total Derivatives Designated as Hedging Instruments | $ | $ | $ | ||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts | Accrued liabilities | $ | $ | $ | |||||||||||||||||||
| Foreign currency forward exchange and other contracts | Other noncurrent liabilities | ||||||||||||||||||||||
| Total Derivatives Not Designated as Hedging Instruments | $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||
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The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations:
| Derivatives Designated As Hedging Instruments | |||||||||||||||||
| For the Three Months Ended | |||||||||||||||||
| March 31, 2023 | March 31, 2022 | Statements of Operations Classification | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Foreign Currency Forward Exchange and Other Contracts: | |||||||||||||||||
| Amount of (loss) gains recognized in OCI | $ | ( | $ | ||||||||||||||
| Amount of gains reclassified from accumulated OCI to the consolidated statements of operations | Cost of sales | ||||||||||||||||
The net gains reclassified from accumulated other comprehensive loss to the consolidated statements of operations during the three months ended March 31, 2023 and 2022, respectively, were offset by changes in cash flows associated with the underlying hedged transactions.
| Derivatives Not Designated As Hedging Instruments | |||||||||||||||||
| For the Three Months Ended | |||||||||||||||||
| March 31, 2023 | March 31, 2022 | Statements of Operations Classification | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Amount of Net Gains (Losses) Recognized in the Statements of Operations: | |||||||||||||||||
| Foreign currency forward exchange and other contracts | $ | $ | ( | Other non-operating (income) expense, net | |||||||||||||
The net gains (losses) recognized in the consolidated statements of operations during the three months ended March 31, 2023 and March 31, 2022, respectively, were offset by foreign currency transaction gains and losses on the related derivative balances.
13. Fair Value Measurements
The following tables present information about Mattel's assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of March 31, 2023, March 31, 2022, and December 31, 2022 and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value. The three levels of the fair value hierarchy are as follows:
•Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
•Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
•Level 3 – Valuations based on inputs that are unobservable, supported by little or no market activity, and that are significant to the fair value of the assets or liabilities.
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The following tables represent Mattel's financial assets and liabilities recorded at fair value:
| March 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts (a) | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts (a) | $ | $ | $ | $ | |||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts (a) | $ | $ | $ | $ | |||||||||||||||||||
| Available-for-sale (b) | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts (a) | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts (a) | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency forward exchange and other contracts (a) | $ | $ | $ | $ | |||||||||||||||||||
(a)The fair value of the foreign currency forward exchange and other contracts was based on dealer quotes of market forward rates and reflects the amount that Mattel would receive or pay at their maturity dates for contracts involving the same notional amounts, currencies, and maturity dates.
(b)The fair value of the available-for-sale security was based on the quoted price on an active public exchange.
Other Financial Instruments
Mattel's financial instruments included cash and equivalents, accounts receivable and payable, accrued liabilities, short-term borrowings, and long-term debt. The fair values of these instruments, excluding long-term debt, approximate their carrying amounts because of their short-term nature. Cash and equivalents were classified as Level 1 and all other financial instruments were classified as Level 2 within the fair value hierarchy.
The estimated fair value of Mattel's long-term debt was $2.19 billion (compared to a carrying amount of $2.35 billion) as of March 31, 2023, $2.65 billion (compared to a carrying amount of $2.60 billion) as of March 31, 2022, and $2.13 billion (compared to a carrying amount of $2.35 billion) as of December 31, 2022. The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and were classified as Level 2 within the fair value hierarchy.
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14. Earnings Per Share
The following table reconciles basic and diluted earnings per common share for the three months ended March 31, 2023 and 2022:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Weighted-average number of common shares | |||||||||||||||||||||||||||||||||||
| Basic net (loss) income per common share | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Weighted-average number of common shares | |||||||||||||||||||||||||||||||||||
| Dilutive share-based awards (a) | |||||||||||||||||||||||||||||||||||
| Weighted-average number of common and potential common shares | |||||||||||||||||||||||||||||||||||
| Diluted net (loss) income per common share | $ | ( | $ | ||||||||||||||||||||||||||||||||
(a)For the three months ended March 31, 2023 and March 31, 2022, share-based awards totaling 14.2 million and 11.1 million, respectively, were excluded from the calculation of diluted net (loss) income per common share because their effect would be antidilutive.
15. Employee Benefit Plans
Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all employees of these companies, which are more fully described in Part II, Item 8 "Financial Statements and Supplementary Data—Note 4 to the Consolidated Financial Statements–Employee Benefit Plans" in the 2022 Annual Report on Form 10-K.
The components of net periodic benefit cost for Mattel's defined benefit pension plans were as follows:
| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Service cost | $ | $ | |||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||
| Recognized actuarial loss | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
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The components of net periodic benefit cost for Mattel's postretirement benefit plans were as follows:
| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Interest cost | $ | $ | |||||||||||||||||||||
| Amortization of prior service credit | ( | ( | |||||||||||||||||||||
| Recognized actuarial gain | ( | ( | |||||||||||||||||||||
| $ | ( | $ | ( | ||||||||||||||||||||
Mattel's service cost component is recorded within operating (loss) income while other components of net periodic pension cost and postretirement benefit cost are recorded within other non-operating (income) expense, net.
During the three months ended March 31, 2023, Mattel made cash contributions totaling approximately $1 million related to its defined benefit pension and postretirement benefit plans. During the remainder of 2023, Mattel expects to make additional cash contributions of approximately $5 million.
16. Share-Based Payments
Mattel has various stock compensation plans, which are described in Part II, Item 8 "Financial Statements and Supplementary Data—Note 8 to the Consolidated Financial Statements—Share-Based Payments" in the 2022 Annual Report on Form 10-K. Under the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan, Mattel has the ability to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance RSUs ("performance awards"), dividend equivalent rights, and shares of common stock to officers, employees, non-employee directors, and consultants providing services to Mattel. Stock options are granted with exercise prices at the fair market value of Mattel's common stock on the applicable grant date and expire no later than ten years from the date of grant. Stock options, RSUs, and performance awards generally provide for vesting over, or at the end of, a period of three years from the date of grant.
Compensation expense, included within other selling and administrative expenses in the consolidated statements of operations, related to stock options, RSUs, and performance awards was as follows:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Stock option compensation expense | $ | $ | |||||||||||||||||||||||||||||||||
| RSU compensation expense | |||||||||||||||||||||||||||||||||||
| Performance award compensation expense | |||||||||||||||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||||||||||||
As of March 31, 2023, total unrecognized compensation expense related to unvested share-based payments totaled $73.4 million and is expected to be recognized over a weighted-average period of 1.8 years.
Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises and the vesting of RSUs and performance awards. Cash received for stock option exercises, net of taxes, was $2.0 million and $13.9 million for the three months ended March 31, 2023 and 2022, respectively.
17. Other Selling and Administrative Expenses
Other selling and administrative expenses included the following:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Design and development | $ | $ | |||||||||||||||||||||||||||||||||
| Intangible asset amortization | |||||||||||||||||||||||||||||||||||
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18. Restructuring Charges
Optimizing for Growth (formerly Capital Light)
Mattel's Optimizing for Growth program is a multi-year cost savings program that integrates and expands upon the previously announced Capital Light program (the "Program"). In February 2023, the Program was expanded to include additional initiatives, including actions to further streamline Mattel's organizational structure.
In connection with the Program, Mattel recorded severance and other restructuring costs in the following cost and expense categories within operating income in the consolidated statements of operations:
| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Cost of sales (a) | $ | $ | |||||||||||||||||||||
| Other selling and administrative expenses (b) | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
(a)Severance and other restructuring charges recorded within cost of sales in the consolidated statements of operations are included in segment operating (loss) income in "Note 21 to the Consolidated Financial Statements—Segment Information."
(b)Severance and other restructuring charges recorded within other selling and administrative expenses in the consolidated statements of operations are included in corporate and other expense in "Note 21 to the Consolidated Financial Statements—Segment Information."
The following tables summarize Mattel's severance and other restructuring charges activity within operating income related to the Program:
| Liability at December 31, 2022 | Charges (a) | Payments/Utilization | Liability at March 31, 2023 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Severance | $ | $ | $ | ( | $ | ||||||||||||||||||
| Other restructuring charges | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
| Liability at December 31, 2021 | Charges (a) | Payments/Utilization | Liability at March 31, 2022 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Severance | $ | $ | $ | ( | $ | ||||||||||||||||||
| Other restructuring charges | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
(a)Other restructuring charges consist primarily of expenses associated with the restructuring of commercial and corporate functions and consolidation of manufacturing facilities.
As of March 31, 2023, Mattel had recorded cumulative severance and other restructuring charges related to the Program of approximately $186 million, which included approximately $73 million of non-cash charges, including $45.4 million recognized within non-operating expense, net, during the fourth quarter of 2022 related to the liquidation of Mattel's subsidiary in Argentina. Furthermore, cumulatively, in conjunction with previous actions taken under the Capital Light program, total expected cash expenditures are approximately $195 to $225 million and total expected non-cash charges are approximately $75 million.
Other Cost Savings Actions
During the three months ended March 31, 2023, Mattel executed additional actions to further streamline its organizational structure that were not included in the Program. In connection with these actions, severance costs of $3.2 million were recorded within other selling and administrative expenses in the consolidated statement of operations.
21
19. Income Taxes
Mattel's benefit for income taxes was $27.0 million for the three months ended March 31, 2023, compared to a provision of $23.9 million for the three months ended March 31, 2022. During the three months ended March 31, 2023 and 2022, Mattel recognized a net discrete tax expense of $0.1 million and $12.2 million, respectively, primarily related to (i) undistributed earnings of certain foreign subsidiaries and (ii) reassessments of prior years' tax liabilities.
Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the three months ended March 31, 2023 and 2022, Mattel's valuation allowance position remained unchanged.
In the normal course of business, Mattel is regularly audited by federal, state, and foreign tax authorities. Based on the current status of federal, state, and foreign audits, Mattel believes it is reasonably possible that in the next 12 months, the total unrecognized tax benefits could decrease by approximately $15.1 million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate settlement of any particular issue with the applicable taxing authority could have a material impact on Mattel's consolidated financial statements.
20. Contingencies
Litigation Related to Yellowstone do Brasil Ltda.
In April 1999, Yellowstone do Brasil Ltda. (formerly known as Trebbor Informática Ltda.) filed a lawsuit against Mattel do Brasil before the 15th Civil Court of Curitiba, State of Parana, requesting the annulment of its security bonds and promissory notes given to Mattel do Brasil as well as damages due to an alleged breach of an oral exclusive distribution agreement between the parties relating to the supply and sale of toys in Brazil. Yellowstone's complaints sought alleged loss of profits plus an unspecified amount of damages.
Mattel do Brasil filed its defenses to these claims and simultaneously presented a counterclaim for unpaid accounts receivable for goods supplied to Yellowstone.
In April 2018, Mattel do Brasil entered into a settlement agreement to resolve this matter, but the settlement was later rejected by the courts, subject to a pending appeal by Mattel.
In October 2018, the Superior Court of Justice issued a final ruling in favor of Yellowstone on the merits of Yellowstone's claims. Previously, the courts had ruled in Mattel's favor on its counterclaim.
In October 2019, Mattel reached an agreement with Yellowstone's former counsel regarding payment of the attorney's fees portion of the judgment. In November 2019, Yellowstone initiated an action to enforce its judgment against Mattel, but did not account for an offset for Mattel's counterclaim. In January 2020, Mattel obtained an injunction, staying Yellowstone's enforcement action pending resolution of Mattel's appeal to enforce the parties' April 2018 settlement. As of March 31, 2023, Mattel assessed its probable loss related to this matter and has accrued a reserve, which is not material.
Litigation Related to the Fisher-Price Rock 'n Play Sleeper
A number of putative class action lawsuits filed between April 2019 and October 2019 are pending against Fisher-Price, Inc. and/or Mattel, Inc. asserting claims for false advertising, negligent product design, breach of warranty, fraud, and other claims in connection with the marketing and sale of the Fisher-Price Rock 'n Play Sleeper (the "Sleeper"). In general, the lawsuits allege that the Sleeper should not have been marketed and sold as safe and fit for prolonged and overnight sleep for infants. The putative class action lawsuits propose nationwide and over 10 statewide consumer classes comprised of those who purchased the Sleeper as marketed as safe for prolonged and overnight sleep. The class actions have been consolidated before a single judge in the United States District Court for the Western District of New York for pre-trial purposes pursuant to the U.S. federal courts' Multi-District Litigation program. In June 2022, the court denied the plaintiffs' motion to certify damages and injunctive relief classes under New York law, but granted plaintiffs' request to certify a New York issue class to resolve two issues on a class-wide basis. In October 2022, the United States Court of Appeals for the Second Circuit denied plaintiffs' petition to appeal the denial of certification of the damages and injunctive relief classes.
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In addition, a stockholder has filed a derivative action in the Court of Chancery for the State of Delaware (Kumar v. Bradley, et al., filed July 7, 2020) alleging breach of fiduciary duty and unjust enrichment related to the development, marketing, and sale of the Sleeper. The defendants in the derivative action are certain of Mattel's current and former officers and directors. In August 2020, the derivative action was stayed pending further developments in the class action lawsuits. In August 2021, a second similar derivative action was filed in the Court of Chancery for the State of Delaware (Armon v. Bradley, et al., filed August 30, 2021), which is also stayed.
The lawsuits seek compensatory damages, punitive damages, statutory damages, restitution, disgorgement, attorneys' fees, costs, interest, declaratory relief, and/or injunctive relief. Mattel believes that the allegations in the lawsuits are without merit and intends to vigorously defend against them. A reasonable estimate of the amount of any possible loss or range of loss for the lawsuits cannot be made at this time.
Mattel also is in discussions with the US Consumer Product Safety Commission ("CPSC") regarding a request from the CPSC that Mattel increase the proportional cash refund available to consumers who participate in the recall of the Sleeper first announced in 2019. Mattel assessed its probable loss related to this matter and has accrued a reserve, which is not material.
Litigation and Investigations Related to Whistleblower Letter
In December 2019 and January 2020, two stockholders filed separate complaints styled as class actions against Mattel, Inc. and certain of its former officers (the "Mattel Defendants"), as well as others, in the United States District Court for the Central District of California, alleging violations of U.S. federal securities laws. The two complaints were consolidated in April 2020 and an amended complaint was filed in May 2020. The complaints rely on the results of an investigation announced by Mattel in October 2019 regarding allegations in a whistleblower letter and claim that Mattel misled the market in several of its financial statements beginning in the third quarter of 2017. The lawsuits allege that the defendants' conduct caused the plaintiffs and other stockholders to purchase Mattel common stock at artificially inflated prices. The court granted plaintiffs' motion for class certification in September 2021. Following a mediation on October 25, 2021, the parties reached an agreement in principle to settle the class action lawsuits, which was later approved by the court. In February 2022, the Mattel Defendants paid $86 million in settlement of the claims against them, which was funded in full by Mattel's insurers. A single stockholder appealed the court's approval of the settlement, but the appeal was dismissed for failure to prosecute in March 2023. The settlement does not entail any admission of fault or liability by the Mattel Defendants, which the Mattel Defendants have expressly contested throughout the pendency of the litigation.
21. Segment Information
Mattel designs, manufactures, and markets a broad variety of toy products worldwide, which are sold to its customers and directly to consumers.
Segment Data
Mattel's reportable segments are: (i) North America, which consists of the United States and Canada; (ii) International; and (iii) American Girl. The North America and International segments sell products across Mattel's categories, although some products are developed and adapted for particular international markets.
The following tables present information regarding Mattel's net sales, operating (loss) income, and assets by reportable segment. The corporate and other expense category includes operating costs not allocated to individual segments, including charges related to incentive and share-based compensation, corporate headquarters functions managed on a worldwide basis, the impact of changes in foreign currency exchange rates on intercompany transactions, and certain severance and other restructuring costs. It is impracticable for Mattel to present net sales by categories, brands, or products, as trade discounts and other allowances are generally recorded in the financial accounting systems by customer.
| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net Sales by Segment | |||||||||||||||||||||||
| North America | $ | $ | |||||||||||||||||||||
| International | |||||||||||||||||||||||
| American Girl | |||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
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| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Operating (Loss) Income by Segment (a) | |||||||||||||||||||||||
| North America | $ | $ | |||||||||||||||||||||
| International | |||||||||||||||||||||||
| American Girl | ( | ( | |||||||||||||||||||||
Corporate and other expense (b) | ( | ( | |||||||||||||||||||||
| Operating (Loss) Income | ( | ||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Interest (income) | ( | ( | |||||||||||||||||||||
| Other non-operating (income) expense, net | ( | ||||||||||||||||||||||
| (Loss) Income Before Income Taxes | $ | ( | $ | ||||||||||||||||||||
(a)Segment operating (loss) income included severance and other restructuring charges of $2.7 million for the three months ended March 31, 2022, which were allocated to the North America and International segments, and no severance and other restructuring charges were allocated to the segments for the three months ended March 31, 2023.
(b)Corporate and other expense included (i) severance and restructuring charges of $23.9 million and $6.8 million for the three months ended March 31, 2023 and 2022, respectively, (ii) inclined sleeper product recall litigation expense of $4.3 million and $0.6 million for the three months ended March 31, 2023 and 2022, respectively.
Segment assets are comprised of accounts receivable, net and inventories.
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Assets by Segment | |||||||||||||||||
| North America | $ | $ | $ | ||||||||||||||
| International | |||||||||||||||||
| American Girl | |||||||||||||||||
| Corporate and other | |||||||||||||||||
| Accounts receivable, net and inventories | $ | $ | $ | ||||||||||||||
Geographic Information
The table below presents information by geographic area. Net sales are attributed to countries based on location of the customer.
| For the Three Months Ended | |||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Net Sales by Geographic Area | |||||||||||||||||||||||
| North America | $ | $ | |||||||||||||||||||||
| International | |||||||||||||||||||||||
| EMEA | |||||||||||||||||||||||
| Latin America | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Total International | |||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
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22. New Accounting Pronouncements
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
In the discussion that follows, "Mattel" refers to Mattel, Inc. and/or one or more of its subsidiaries.
The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q. Mattel's business is seasonal with consumers making a large percentage of all toy purchases during the traditional holiday season; therefore, results of operations are most comparable to corresponding periods.
The following discussion includes currency exchange rate impact, a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC ("Regulation G"), to supplement the financial results as reported in accordance with GAAP. The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates. Mattel uses this non-GAAP financial measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. Management believes that the disclosure of this non-GAAP financial measure provides useful supplemental information to investors to allow them to better evaluate ongoing business performance and certain components of Mattel's results. This measure is not, and should not be viewed as, a substitute for GAAP financial measures.
The following discussion also includes the use of gross billings, a key performance indicator. Gross billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or 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 IP. Mattel's portfolio of owned and licensed brands and products are organized into the following categories:
Dolls—including brands such as Barbie, American Girl, Disney Princess and Frozen, Monster High, and Polly Pocket. Mattel's Dolls portfolio is driven by the flagship Barbie brand and a collection of complementary brands offered globally. Empowering girls since 1959, Barbie has inspired the limitless potential of every girl by showing them that they can be anything. American Girl, with an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products, is best known for imparting valuable life lessons that instill confidence through its inspiring dolls and books, featuring diverse characters from past and present. American Girl products are sold directly to consumers through its website, proprietary retail stores in the United States, at select retailers nationwide, and its specialty boutiques and franchise stores in Canada.
Infant, Toddler, and Preschool—including brands such as Fisher-Price and Thomas & Friends, and Power Wheels. As a leader in play and child development, Fisher-Price's mission is to help families by making the most fun, enriching products for infants, toddlers, and preschoolers. Thomas & Friends is an award-winning preschool train brand franchise that brings meaningful life lessons of friendship and teamwork to kids through toys, content, live events, and other consumer products.
Vehicles—including brands such as Hot Wheels (including Hot Wheels Monster Trucks and Hot Wheels Mario Kart (Nintendo)), Matchbox, and Cars (Disney Pixar). In production for over 50 years, Hot Wheels continues to push the limits of performance and design and ignites 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—including brands such as Masters of the Universe, MEGA, UNO, Lightyear (Disney Pixar), Jurassic World (NBCUniversal), WWE, and Star Wars (Disney's Lucasfilm). Mattel's Action Figures portfolio is comprised of product lines associated with licensed entertainment franchises that are driven by major tentpole releases, such as Lightyear and Jurassic World, as well as product lines from Mattel's owned IP, such as Masters of the Universe. As the challenger brand in Building Sets, MEGA sparks creativity through the power of connection with builders of all ages and fans of global franchises. Within Games, UNO is the classic matching card game that is easy to learn and fast fun for everyone. Other includes Plush, which contains products associated with movie releases from licensed entertainment franchises, as well as Mattel-owned IP.
Recent Developments
As anticipated, Mattel's first quarter 2023 results were negatively impacted by elevated retail inventory levels. While consumer demand for Mattel's products, excluding Russia, was positive, net sales in the first quarter of 2023 were approximately $815 million, a decrease of 22% as compared to the first quarter of the prior year, and Mattel incurred an operating loss of approximately $115 million. The first quarter declines were primarily due to the negative impact from retailers managing their inventory levels, which were elevated entering the year, and also due to the comparison to the prior year first quarter, which benefited from retailers building their inventory levels earlier in the year.
Mattel's gross margin also declined during the first quarter of 2023, primarily due to inventory management efforts, including higher close-out sales and inventory obsolescence, cost inflation, unfavorable fixed cost absorption associated with lower sales volume, product mix, and other factors. These negative factors were partially offset by favorable pricing actions and incremental realized savings from the Optimizing for Growth program.
Although operating results were below prior year, Mattel believes the retail inventories will normalize by the end of the first half of 2023, and anticipates a return to shipping patterns more aligned with historical trends in the second half of 2023.
In the first quarter of 2023, Mattel resumed share repurchase activities, with $34 million of share repurchases under the existing share repurchase program, which has a remaining authorization of $169 million as of March 31, 2023.
To the extent the existing macro-economic environment remains challenging, or worsens, it may have a material effect on Mattel's results of operations and financial condition. Refer to Part I, Item 1A "Risk Factors" in the 2022 Annual Report on Form 10-K for further discussion regarding potential impacts on Mattel's business.
Russia - Ukraine War
The ongoing war between Russia and Ukraine 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 in Ukraine, its operations in Russia have experienced significant disruption and Mattel paused all shipments into Russia in early 2022. Mattel's net sales in these two countries represented less than 3% of total net sales during the three months ended March 31, 2022.
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Results of Operations—First Quarter
Consolidated Results
The following table includes Mattel's consolidated results for the first quarter of 2023 and 2022:
| For the Three Months Ended | Year/Year Change | ||||||||||||||||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||||||||||||||
| Amount | % of Net Sales | Amount | % of Net Sales | % | Basis Points of Net Sales | ||||||||||||||||||||||||||||||
| (In millions, except percentage and basis point information) | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 814.6 | $ | 1,041.3 | -22 | % | — | ||||||||||||||||||||||||||||
| Cost of sales | 488.8 | 60.0 | % | 558.4 | 53.6 | % | -12 | % | 640 | ||||||||||||||||||||||||||
| Gross profit | 325.8 | 40.0 | % | 482.9 | 46.4 | % | -33 | % | (640) | ||||||||||||||||||||||||||
| Advertising and promotion expenses | 76.0 | 9.3 | % | 73.8 | 7.1 | % | 3 | % | 220 | ||||||||||||||||||||||||||
| Other selling and administrative expenses | 364.8 | 44.8 | % | 329.1 | 31.6 | % | 11 | % | 1,320 | ||||||||||||||||||||||||||
| Operating (loss) income | (115.0) | -14.1 | % | 80.1 | 7.7 | % | N/M | N/M | |||||||||||||||||||||||||||
| Interest expense | 31.1 | 3.8 | % | 33.0 | 3.2 | % | -6 | % | 60 | ||||||||||||||||||||||||||
| Interest (income) | (6.5) | -0.8 | % | (1.2) | -0.1 | % | 442 | % | (70) | ||||||||||||||||||||||||||
| Other non-operating (income) expense, net | (1.4) | 9.1 | |||||||||||||||||||||||||||||||||
| (Loss) income before income taxes | (138.2) | -17.0 | % | 39.1 | 3.8 | % | N/M | N/M | |||||||||||||||||||||||||||
| (Benefit) provision for income taxes | (27.0) | 23.9 | |||||||||||||||||||||||||||||||||
| (Income) from equity method investment | (4.7) | (6.3) | |||||||||||||||||||||||||||||||||
| Net (loss) income | $ | (106.5) | -13.1 | % | $ | 21.5 | 2.1 | % | N/M | N/M | |||||||||||||||||||||||||
N/M - Not meaningful
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Sales
Net sales in the first quarter of 2023 were $814.6 million, a decrease of $226.7 million, or 22%, as compared to $1.04 billion in the first quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $253.1 million, partially offset by a decrease in sales adjustments of $26.3 million.
Gross billings represent amounts invoiced to a customer and do not include the impact of sales adjustments, such as trade discounts and other allowances. Changes in gross billings are discussed below because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally recorded by customer and are not associated with categories, brands, or individual products. The following table provides a summary of Mattel's consolidated gross billings by categories, along with supplemental information by brand, for the first quarter of 2023 and 2022:
| For the Three Months Ended | % Change as Reported | Currency Exchange Rate Impact | |||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||
| Gross Billings by Categories | |||||||||||||||||||||||
| Dolls | $ | 306.1 | $ | 396.1 | -23 | % | -1 | % | |||||||||||||||
| Infant, Toddler, and Preschool | 150.2 | 205.5 | -27 | % | -1 | % | |||||||||||||||||
| Vehicles | 283.6 | 282.1 | 1 | % | — | % | |||||||||||||||||
| Action Figures, Building Sets, Games, and Other | 171.5 | 280.7 | -39 | % | -1 | % | |||||||||||||||||
| Gross Billings | $ | 911.3 | $ | 1,164.4 | -22 | % | -1 | % | |||||||||||||||
| Supplemental Gross Billings Disclosure | |||||||||||||||||||||||
| Gross Billings by Top 3 Power Brands | |||||||||||||||||||||||
| Barbie | $ | 176.9 | $ | 298.0 | -41 | % | -1 | % | |||||||||||||||
| Hot Wheels | 244.9 | 241.4 | 1 | % | -1 | % | |||||||||||||||||
| Fisher-Price | 125.7 | 171.3 | -27 | % | -1 | % | |||||||||||||||||
| Other | 363.9 | 453.8 | -20 | % | -1 | % | |||||||||||||||||
| Gross Billings | $ | 911.3 | $ | 1,164.4 | -22 | % | -1 | % | |||||||||||||||
Gross billings were $911.3 million in the first quarter of 2023, a decrease of $253.1 million, or 22%, as compared to $1.16 billion in the first quarter of 2022, with an unfavorable impact from changes in currency exchange rates of one percentage point. The decrease in gross billings was primarily due to lower billings of Action Figures, Building Sets, Games, and Other, Dolls, and Infant, Toddler and Preschool.
Dolls gross billings decreased 23%, of which 31% was due to lower billings of Barbie products and 3% was due to lower billings of Enchantimals products, partially offset by higher billings of Disney Princess and Frozen products of 10% and Monster High products of 6%.
Infant, Toddler, and Preschool gross billings decreased 27%, of which 22% was due to lower billings of Fisher-Price products and 3% was due to lower billings of Fisher-Price Friends products.
Vehicles gross billings increased 1%, due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings decreased 39%, of which 16% was due to lower billings of Jurassic World products and 5% was due to lower billings of Lightyear products following their 2022 theatrical releases, 8% was due to lower billings of other Action Figures products, 6% was due to lower billing of Games products, and 3% was due to lower billings of Building Sets.
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 $96.8 million in the first quarter of 2023, as compared to $123.1 million in the first quarter of 2022, due to lower gross billings. Sales adjustments as a percentage of net sales was relatively flat at 11.9% in the first quarter of 2023, as compared to 11.8% in the first quarter of 2022.
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Cost of Sales
Cost of sales decreased by $69.6 million, or 12%, to $488.8 million in the first quarter of 2023 from $558.4 million in the first quarter of 2022. Within cost of sales, product and other costs decreased by $61.6 million, or 14%, to $386.8 million in the first quarter of 2023 from $448.4 million in the first quarter of 2022; royalty expense decreased by $8.2 million, or 18%, to $36.7 million in the first quarter of 2023 from $44.9 million in the first quarter of 2022; and freight and logistics expenses were relatively consistent at $65.3 million in the first quarter of 2023, as compared to $65.1 million in the first quarter of 2022.
Gross Margin
Gross margin decreased to 40.0% in the first quarter of 2023 from 46.4% in the first quarter of 2022. The decrease in gross margin was primarily due to inventory management efforts of 420 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 210 basis points, unfavorable fixed cost absorption of 140 basis points, and unfavorable product mix and other of 140 basis points. These negative factors were partially offset by favorable pricing actions of 120 basis points and incremental realized savings from the Optimizing for Growth program of 120 basis points.
Advertising and Promotion Expenses
Advertising and promotion expenses primarily consist of: (i) media costs, which include the media, planning, and buying fees for television, print, and online advertisements, (ii) non-media costs, which include commercial and website production, merchandising, and promotional costs, (iii) retail advertising costs, which include consumer direct catalogs, and (iv) generic advertising costs, which include trade show costs. Advertising and promotion expenses as a percentage of net sales increased to 9.3% in the first quarter of 2023, as compared to 7.1% in the first quarter of 2022, primarily due to the 22% decrease in net sales.
Other Selling and Administrative Expenses
Other selling and administrative expenses were $364.8 million, or 44.8% of net sales, in the first quarter of 2023, an increase of $35.7 million, as compared to $329.1 million, or 31.6% of net sales, in the first quarter of 2022. The increase in other selling and administrative expenses was primarily due to market-related pay increases of $17.8 million, higher severance and restructuring charges of $17.1 million, and information technology and administrative costs of $8.2 million, partially offset by incremental realized savings from the Optimizing for Growth program of $11.4 million.
Interest Expense
Interest expense was $31.1 million in the first quarter of 2023, as compared to $33.0 million in the first quarter of 2022. The decrease in interest expense was due to the $250.0 million repayment of the 2013 3.15% Senior Notes due March 2023 in the fourth quarter of 2022.
(Benefit) Provision for Income Taxes
Mattel's benefit for income taxes was $27.0 million in the first quarter of 2023, compared to a provision of $23.9 million in the first quarter of 2022. During the three months ended March 31, 2023 and 2022, Mattel recognized a net discrete tax expense of $0.1 million and $12.2 million, respectively, primarily related to (i) undistributed earnings of certain foreign subsidiaries and (ii) reassessments of prior years' tax liabilities.
Evaluating the need for and the amount of a valuation allowance for deferred tax assets often requires significant judgment and extensive analysis of all available evidence to determine whether it is more-likely-than-not that these assets will be realizable. Mattel routinely assesses the positive and negative evidence for this realizability, including the evaluation of sustained profitability and three years of cumulative pretax income for each tax jurisdiction. During the three months ended March 31, 2023 and 2022, Mattel's valuation allowance position remained unchanged.
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Segment Results
North America Segment
The following tables provide a summary of net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the North America segment for the first quarter of 2023 and 2022:
| For the Three Months Ended | % Change as Reported | Currency Exchange Rate Impact | |||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||
| Net Sales | $ | 437.0 | $ | 602.1 | -27 | % | — | % | |||||||||||||||
| Segment Operating Income | 43.9 | 171.4 | -74 | % | |||||||||||||||||||
Net sales for the North America segment in the first quarter of 2023 were $437.0 million, a decrease of $165.1 million, or 27%, as compared to $602.1 million in the first quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $173.2 million, partially offset by a decrease in sales adjustments of $8.1 million.
| For the Three Months Ended | % Change as Reported | Currency Exchange Rate Impact | |||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||
| Gross Billings by Categories | |||||||||||||||||||||||
| Dolls | $ | 132.9 | $ | 182.2 | -27 | % | — | % | |||||||||||||||
| Infant, Toddler, and Preschool | 87.2 | 131.5 | -34 | % | — | % | |||||||||||||||||
| Vehicles | 142.2 | 146.8 | -3 | % | — | % | |||||||||||||||||
| Action Figures, Building Sets, Games, and Other | 106.3 | 181.3 | -41 | % | — | % | |||||||||||||||||
| Gross Billings | $ | 468.5 | $ | 641.8 | -27 | % | — | % | |||||||||||||||
| Supplemental Gross Billings Disclosure | |||||||||||||||||||||||
| Gross Billings by Top 3 Power Brands | |||||||||||||||||||||||
| Barbie | $ | 89.5 | $ | 164.0 | -45 | % | — | % | |||||||||||||||
| Hot Wheels | 119.7 | 121.7 | -2 | % | -1 | % | |||||||||||||||||
| Fisher-Price | 75.4 | 112.5 | -33 | % | — | % | |||||||||||||||||
| Other | 184.0 | 243.6 | -24 | % | — | % | |||||||||||||||||
| Gross Billings | $ | 468.5 | $ | 641.8 | -27 | % | — | % | |||||||||||||||
Gross billings for the North America segment were $468.5 million in the first quarter of 2023, a decrease of $173.2 million, or 27%, as compared to $641.8 million in the first quarter of 2022. The decrease in the North America segment gross billings was due to lower billings across all categories.
Dolls gross billings decreased 27%, of which 41% was due to lower billings of Barbie products, partially offset by higher billings of Disney Princess and Frozen products of 9% and higher billings of Monster High products of 9%.
Infant, Toddler, and Preschool gross billings decreased 34%, of which 29% was due to lower billings of Fisher-Price products and 2% was due to lower billings of Fisher-Price Friends products.
Vehicles gross billings decreased 3%, of which 1% was due to lower billings of Hot Wheels products and 1% was due to lower billings of Matchbox products.
Action Figures, Building Sets, Games, and Other gross billings decreased 41%, of which 19% was due to lower billings of Jurassic World products and 7% was due to lower billings of Lightyear products following their 2022 theatrical releases, 8% was due to lower billings of other Action Figures products, 5% was due to lower billings of Games products, and 2% was due to lower billings of Building Sets.
Sales adjustments decreased to $31.5 million in the first quarter of 2023, as compared to $39.7 million in the first quarter of 2022, due to lower gross billings. Sales adjustments as a percentage of net sales increased to 7.2% for the first quarter of 2023, as compared to 6.6% for the first quarter of 2022. The increased rate was due to a higher proportion of sales in lines of business with higher average sales adjustment rates.
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Cost of sales decreased by $44.6 million, or 14%, to $276.2 million in the first quarter of 2023 from $320.7 million in the first quarter of 2022, primarily due to a decrease in product and other costs of $36.6 million and a decrease in royalty expense of $8.5 million.
Gross margin in the first quarter of 2023 decreased to 36.8% from 46.7% in the first quarter of 2022, primarily due to inventory management efforts of 440 basis points, including higher close-out sales and inventory obsolescence, product mix and other of 400 basis points, cost inflation of 220 basis points, and fixed cost absorption of 160 basis points. These negative factors were partially offset by favorable pricing actions of 110 basis points and incremental realized savings from the Optimizing for Growth program of 90 basis points.
North America segment operating income was $43.9 million in the first quarter of 2023, as compared to segment operating income of $171.4 million in the first quarter of 2022. The decrease was primarily due to lower gross profit.
International Segment
The following tables provide a summary of net sales, segment operating income, and gross billings by categories, along with supplemental information by brand, for the International segment for the first quarter of 2023 and 2022:
| For the Three Months Ended | % Change as Reported | Currency Exchange Rate Impact | |||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||
| Net Sales | $ | 344.1 | $ | 403.8 | -15 | % | -2 | % | |||||||||||||||
| Segment Operating Income | 0.3 | 46.8 | -99 | % | |||||||||||||||||||
Net sales for the International segment in the first quarter of 2023 were $344.1 million, a decrease of $59.7 million, or 15%, as compared to $403.8 million in the first quarter of 2022. The decrease in net sales was the result of decreases in gross billings of $77.7 million, partially offset by a decrease in sales adjustments of $18.0 million.
| For the Three Months Ended | % Change as Reported | Currency Exchange Rate Impact | |||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||
| Gross Billings by Categories | |||||||||||||||||||||||
| Dolls | $ | 138.9 | $ | 177.6 | -22 | % | -2 | % | |||||||||||||||
| Infant, Toddler, and Preschool | 63.0 | 74.0 | -15 | % | -3 | % | |||||||||||||||||
| Vehicles | 141.5 | 135.3 | 5 | % | -1 | % | |||||||||||||||||
| Action Figures, Building Sets, Games, and Other | 65.2 | 99.4 | -34 | % | -1 | % | |||||||||||||||||
| Gross Billings | $ | 408.6 | $ | 486.3 | -16 | % | -2 | % | |||||||||||||||
| Supplemental Gross Billings Disclosure | |||||||||||||||||||||||
| Gross Billings by Top 3 Power Brands | |||||||||||||||||||||||
| Barbie | $ | 87.3 | $ | 134.0 | -35 | % | -3 | % | |||||||||||||||
| Hot Wheels | 125.2 | 119.7 | 5 | % | -1 | % | |||||||||||||||||
| Fisher-Price | 50.3 | 58.7 | -14 | % | -2 | % | |||||||||||||||||
| Other | 145.7 | 173.9 | -16 | % | -1 | % | |||||||||||||||||
| Gross Billings | $ | 408.6 | $ | 486.3 | -16 | % | -2 | % | |||||||||||||||
Gross billings for the International segment were $408.6 million in the first quarter of 2023, a decrease of $77.7 million, or 16%, as compared to $486.3 million in the first quarter of 2022, with an unfavorable impact from changes in currency exchange rates of two percentage points. The decrease in the International segment gross billings was due to lower billings of Dolls, Action Figures, Building Sets, Games, and Other, and Infant, Toddler and Preschool, partially offset by higher billings of Vehicles.
Dolls gross billings decreased 22%, of which 27% was due to lower billings of Barbie products and 7% was due to lower billings of Enchantimals products, partially offset by higher billings of Disney Princess and Frozen products of 12% and higher billings of Monster High products of 5%.
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Infant, Toddler, and Preschool gross billings decreased 15%, of which 11% was due to lower billings of Fisher-Price products and 5% was due to lower billings of Fisher Price Friends products.
Vehicles gross billings increased 5% due to higher billings of Hot Wheels products.
Action Figures, Building Sets, Games, and Other gross billings decreased 34%, of which 10% was due to lower billings of Jurassic World products and 3% was due to lower billings of Lightyear products following their 2022 theatrical releases, 9% was due to lower billings of Games products, 6% was due to lower billings of other Action Figures products, and 5% was due to lower billings of Building Sets.
Sales adjustments decreased to $64.5 million in the first quarter of 2023, as compared to $82.4 million in the first quarter of 2022, due to lower gross billings. Sales adjustments as a percentage of net sales decreased to 18.7% in the first quarter of 2023, as compared to 20.4% in the first quarter of 2022. The decrease was due to lower sales in markets with higher average sales adjustment rates.
Cost of sales decreased by $19.2 million, or 9%, to $201.7 million in the first quarter of 2023 from $220.8 million in the first quarter of 2022, primarily due to a decrease in product and other costs of $18.9 million, as a result of lower net sales.
Gross margin decreased to 41.4% in the first quarter of 2023 from 45.3% in the first quarter of 2022, primarily due to inventory management efforts of 420 basis points, including higher close-out sales and inventory obsolescence, cost inflation of 210 basis points, and unfavorable fixed cost absorption of 100 basis points. These negative factors were partially offset by incremental realized savings from the Optimizing for Growth program of 170 basis points and favorable pricing actions of 140 basis points.
International segment operating income was $0.3 million in the first quarter of 2023, as compared to segment operating income of $46.8 million in the first quarter of 2022, primarily due to lower gross profit.
American Girl Segment
The following table provides a summary of net sales and segment operating loss for the American Girl segment for the first quarter of 2023 and 2022:
| For the Three Months Ended | % Change as Reported | Currency Exchange Rate Impact | |||||||||||||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||
| Net Sales | $ | 33.5 | $ | 35.3 | -5 | % | — | % | |||||||||||||||
| Segment Operating Loss | (11.8) | (17.2) | -32 | % | |||||||||||||||||||
Net sales for the American Girl segment in the first quarter of 2023 were $33.5 million, a decrease of $1.9 million, or 5%, as compared to $35.3 million in the first quarter of 2022. The decrease in net sales was the result of a decrease in gross billings of $2.1 million, or 6%, to $34.2 million in the first quarter of 2023 from $36.3 million in the first quarter of 2022. The decrease was primarily due to lower billings of Girl of the Year dolls of $4.8 million, partially offset by higher billings of historical character dolls products of $1.6 million.
Sales adjustments were $0.8 million in the first quarter of 2023, as compared to $1.0 million in the first quarter of 2022.
Cost of sales decreased by $1.5 million, or 8%, to $16.5 million in the first quarter of 2023, as compared to a 5% decrease in net sales, primarily due to a decrease in product and other costs of $1.3 million.
Gross margin increased to 50.8% in the first quarter of 2023 from 49.2% in the first quarter of 2022, primarily due to favorable pricing actions of 160 basis points and incremental realized savings from the Optimizing for Growth program of 130 basis points, partially offset by cost inflation of 160 basis points.
American Girl segment operating loss was $11.8 million in the first quarter of 2023, as compared to $17.2 million in the first quarter of 2022, primarily due to a decrease in other selling and administrative expenses of $3.2 million and a decrease in advertising and promotion expenses of $2.5 million.
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Cost Savings Program
Optimizing for Growth (formerly Capital Light)
In February 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"), which had targeted annual gross cost savings of $250 million from actions expected to be completed beginning 2021 through 2023. In February 2023, Mattel expanded the Program and increased the targeted annual gross cost savings from $250 million to $300 million, reflecting additional initiatives, including actions to further streamline Mattel's organizational structure. The additional initiatives are estimated to result in incremental employee severance charges of $20 to $25 million during 2023.
Of the $300 million in targeted gross cost savings, approximately 60% is expected to benefit cost of sales, 30% 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 $155 to $185 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 | $50 to $60 million | ||||
| Real estate/supply chain optimization and other restructuring costs | $30 to $40 million | ||||
| Non-cash charges (a) | $55 to $60 million | ||||
| Total estimated severance and restructuring costs | $135 to $160 million | ||||
| Information technology enhancements and other investments | $75 to $85 million | ||||
| Total estimated actions | $210 to $245 million | ||||
(a)Non-cash charges include $45.4 million of currency translation losses that were recognized within other non-operating expense, net, in the consolidated statement of operations during the fourth quarter of 2022 as a result of Mattel's liquidation of its subsidiary in Argentina, which was substantially completed in 2022.
Cumulatively, in conjunction with previous actions taken under the Capital Light program prior to 2021, targeted annual gross cost savings for the Program are $375 million by 2023, with total expected cash expenditures of approximately $195 to $225 million, and total expected non-cash charges of approximately $75 million. Of the $375 million in targeted annual 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 operating income in the consolidated statements of operations:
| For the Three Months Ended | |||||||||||
| March 31, 2023 | March 31, 2022 | ||||||||||
| (In millions) | |||||||||||
| Cost of sales (a) | $ | — | $ | 2.7 | |||||||
| Other selling and administrative expenses (b) | 20.7 | 6.4 | |||||||||
| $ | 20.7 | $ | 9.1 | ||||||||
(a)Severance and other restructuring costs recorded within cost of sales in the consolidated statements of operations are included in segment operating (loss) income in "Note 21 to the Consolidated Financial Statements—Segment Information."
(b)Severance and other restructuring costs recorded within other selling and administrative expenses in the consolidated statements of operations are included in corporate and other expense in "Note 21 to the Consolidated Financial Statements—Segment Information."
As of March 31, 2023, Mattel has recorded cumulative severance and other restructuring charges related to the Program of approximately $186 million, which include approximately $73 million of non-cash charges. Non-cash charges include $45.4 million recorded in non-operating expense, net, during 2022 related to the liquidation of Mattel's subsidiary in Argentina. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately $300 million, which represents approximately 75% benefit to cost of sales, 20% benefit to other selling and administrative expenses, and 5% benefit to advertising and promotion expenses, as of March 31, 2023, in connection with the Program.
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Other Cost Savings Actions
During the three months ended March 31, 2023, Mattel executed additional actions to further streamline its organizational structure that were not included in the Program. In connection with these actions, severance costs of $3.2 million were recorded within other selling and administrative expenses in the consolidated statement of operations.
Liquidity and Capital Resources
Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, short-term borrowing facilities, including its $1.40 billion 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 $461.7 million in cash and equivalents at March 31, 2023, approximately $289.1 million was held by foreign subsidiaries, including $65.0 million held in Russia. Mattel's cash held in Russia can be used within the country, however, its movement out of Russia is currently limited.
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 Revolving Credit Facility covenants, or deterioration of Mattel's credit ratings. However, based on Mattel's current business plan and factors known to date, it is expected that existing cash and equivalents, cash flows from operations, availability under the Revolving Credit Facility, and access to capital markets, will be sufficient to meet working capital and operating expenditure requirements for the next twelve months and in the long-term.
Current Market Conditions
Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates.
Consistent with prior periods, Mattel intends to utilize its existing cash and cash equivalents, cash flow from operations, and borrowing under the Revolving Credit Facility to meet its short-term liquidity needs. At March 31, 2023, Mattel had no outstanding borrowings under the Revolving Credit Facility and approximately $8 million in outstanding letters of credit under the 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, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.
Mattel sponsors defined benefit pension plans and postretirement benefit plans for its employees. Actual returns below the expected rate of return, along with changes in interest rates that affect the measurement of the liability, would impact the amount and timing of Mattel's future contributions to these plans.
Cash Flow Activities
Cash flows used for operating activities were $206.4 million in the first quarter of 2023, as compared to $143.8 million in the first quarter of 2022. The increase was primarily due to changes in net earnings, excluding the impact of non-cash items, partially offset by $78.7 million of lower working capital usage.
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Cash flows used for investing activities were $42.5 million in the first quarter of 2023, as compared to $55.0 million in the first quarter of 2022. The decrease was primarily due to lower net payments of $20.7 million of foreign currency forward exchange contracts, partially offset by an increase in capital expenditures of $7.0 million in the first quarter of 2023.
Cash flows used for financing activities were $53.2 million in the first quarter of 2023, as compared to $4.2 million in the first quarter of 2022. The increase in cash flows used for financing activities was primarily due to share repurchases of $34.0 million, and lower proceeds from stock option exercises of $11.9 million in the first quarter of 2023.
Seasonal Financing
See Part I, Item 1 "Financial Statements—Note 8 to the Consolidated Financial Statements—Seasonal Financing" of this Quarterly Report on Form 10-Q.
Financial Position
Mattel's cash and equivalents decreased $299.5 million to $461.7 million at March 31, 2023, as compared to $761.2 million at December 31, 2022, primarily due to cash flows used for operating activities of $206.4 million, capital expenditures of $43.0 million, and share repurchases of $34.0 million during the three months ended March 31, 2023. Mattel's cash and equivalents decreased $74.9 million to $461.7 million at March 31, 2023, as compared to $536.6 million at March 31, 2022. The decrease was primarily due to the repayment of the $250.0 million aggregate principal amount of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022, capital expenditures of $193.5 million in the trailing twelve months, and share repurchases of $34.0 million in the first quarter of 2023, partially offset by cash flows generated from operating activities of $380.3 million and proceeds from the sale of assets/business of $39.8 million in the trailing twelve months.
Accounts receivable decreased $186.4 million to $673.8 million at March 31, 2023, as compared to $860.2 million at December 31, 2022, primarily due to seasonal declines as year-end receivables are collected. Accounts receivable decreased $188.4 million to $673.8 million at March 31, 2023, as compared to $862.2 million at March 31, 2022, primarily due to the decline in net sales in the first quarter of 2023.
Inventories increased $67.0 million to $961.0 million at March 31, 2023, as compared to $894.1 million at December 31, 2022, primarily due to seasonal inventory build. Inventories were $961.0 million at March 31, 2023, relatively flat as compared to $969.2 million at March 31, 2022.
Prepaid expenses and other current assets increased $56.2 million to $269.7 million at March 31, 2023, as compared to $213.5 million at December 31, 2022. The increase in prepaid expenses and other current assets included increases in prepaid taxes of $22.5 million, other current assets of $18.8 million, and prepaid insurance and maintenance of $13.0 million. Prepaid expenses and other current assets were $269.7 million at March 31, 2023, relatively flat as compared to $267.7 million at March 31, 2022.
Accounts payable and accrued liabilities decreased $194.7 million to $955.5 million at March 31, 2023, as compared to $1.15 billion at December 31, 2022, due to seasonal declines in expenditure levels. Accounts payable and accrued liabilities decreased $322.5 million to $955.5 million at March 31, 2023, as compared to $1.28 billion at March 31, 2022, primarily due to lower payables associated with inventory production and lower accrued incentive compensation of $126.8 million.
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A summary of Mattel's capitalization is as follows:
| March 31, 2023 | March 31, 2022 | December 31, 2022 | |||||||||||||||||||||||||||||||||
| (In millions, except percentage information) | |||||||||||||||||||||||||||||||||||
| Cash and equivalents | $ | 461.7 | $ | 536.6 | $ | 761.2 | |||||||||||||||||||||||||||||
| 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 | — | ||||||||||||||||||||||||||||||||
| 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 | (23.3) | (27.9) | (24.4) | ||||||||||||||||||||||||||||||||
| Total debt | 2,326.7 | 55 | % | 2,572.2 | 61 | % | 2,325.6 | 53 | % | ||||||||||||||||||||||||||
| Stockholders' equity | 1,937.7 | 45 | 1,618.1 | 39 | 2,056.3 | 47 | |||||||||||||||||||||||||||||
| Total capitalization (debt plus equity) | $ | 4,264.4 | 100 | % | $ | 4,190.2 | 100 | % | $ | 4,381.9 | 100 | % | |||||||||||||||||||||||
Total debt, including short-term borrowings, remained consistent at $2.33 billion at March 31, 2023, as compared to $2.33 billion at December 31, 2022. Total debt, including short-term borrowings, was $2.33 billion at March 31, 2023, as compared to $2.57 billion at March 31, 2022. The decrease was due to the repayment of the $250.0 million aggregate principal amount of the 2013 Senior Notes due March 2023 in the fourth quarter of 2022.
Stockholders' equity decreased $118.6 million to $1.94 billion at March 31, 2023, as compared to $2.06 billion at December 31, 2022, primarily due to net loss for the first three months of 2023. Stockholders' equity increased $319.6 million to $1.94 billion at March 31, 2023, as compared to $1.62 billion at March 31, 2022, primarily due to net income in the trailing twelve months and share repurchases of $34.0 million during the first quarter of 2023.
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 2022 Annual Report on Form 10-K and did not materially change during the first three months of 2023.
New Accounting Pronouncements
See Part I, Item 1 "Financial Statements—Note 22 to the Consolidated Financial Statements—New Accounting Pronouncements" of this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measure
To supplement the financial results presented in accordance with GAAP, Mattel presents a non-GAAP financial measure within the meaning of Regulation G promulgated by the SEC. The non-GAAP financial measure that Mattel presents is currency exchange rate impact. Mattel uses this measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance. Mattel believes that the disclosure of this non-GAAP financial measure provides useful supplemental information to investors to be able to better evaluate ongoing business performance and certain components of Mattel's results. This measure is not, and should not be viewed as, a substitute for GAAP financial measures and may not be comparable to similarly-titled measures used by other companies.
Currency Exchange Rate Impact
The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates.
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For entities reporting in currencies other than the U.S. dollar, Mattel calculates the percentage change of period-over-period results at constant currency exchange rates (established as described below) by translating current period and prior period results using these rates and then determines the currency exchange rate impact percentage by calculating the difference between the percentage change at such constant currency exchange rates and the percentage change at actual exchange rates.
The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year. They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual 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 are not associated with categories, brands, or individual products.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Rate Risk
Currency exchange rate fluctuations impact Mattel's results of operations and cash flows. Chinese yuan, Euro, and Russian ruble were the primary currencies that caused foreign currency transaction exposure for Mattel during the first three months of 2023. 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 24 months. For those intercompany receivables and payables that are not hedged, the transaction gains or losses are recorded in the consolidated statements of operations in the period in which the exchange rate changes as part of operating (loss) income or other non-operating (income) expense, net based on the nature of the underlying transaction. Transaction gains or losses on hedged intercompany inventory transactions are recorded in the consolidated statements of operations in the period in which the inventory is sold to customers. In addition, Mattel manages its exposure to currency exchange rate fluctuations through the selection of currencies used for international borrowings. Mattel does not trade in financial instruments for speculative purposes.
Mattel's financial position is also impacted by currency exchange rate fluctuations on translation of its net investments in subsidiaries with non-U.S. dollar functional currencies. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars at fiscal period-end exchange rates. Income, expense, and cash flow items are translated at weighted-average exchange rates prevailing during the fiscal period. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity. Mattel's primary currency translation adjustments for the three months ended March 31, 2023 were related to its net investments in entities having functional currencies denominated in the Mexican peso, British pound sterling, Russian ruble, Chilean peso, and Brazilian real.
There are numerous factors impacting the amount by which Mattel's financial results are affected by foreign currency translation and transaction gains and losses resulting from changes in currency exchange rates, including, but not limited to, the level of foreign currency forward exchange contracts in place at a given time and the volume of foreign currency-denominated transactions in a given period. However, assuming that such factors were held constant, Mattel estimates that a one percent change in the U.S. dollar would have impacted Mattel's first quarter net sales by approximately 0.4% and would have less than a $0.01 impact to Mattel's net income per share.
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Turkey Operations
Effective April 1, 2022, Mattel has accounted for Turkey as a highly inflationary economy, as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning April 1, 2022, Mattel's Turkey subsidiary has designated the U.S. dollar as its functional currency.
Argentina Operations
During the third quarter of 2021, Mattel began a process to liquidate its subsidiary in Argentina. The liquidation was substantially completed during the fourth quarter of 2022. Prior to the substantial completion of the liquidation, Mattel had recorded $45.4 million of currency translation adjustments in accumulated other comprehensive loss, net within its consolidated balance sheet. As a result of the substantially complete liquidation, the cumulative currency translation adjustments were removed from accumulated other comprehensive loss and recognized as a loss in other non-operating expense within the consolidated statement of operations in the fourth quarter of 2022.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of March 31, 2023, 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 March 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, Mattel's internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The content of Part I, Item 1 "Financial Statements—Note 20 to the Consolidated Financial Statements—Contingencies" of this Quarterly Report on Form 10-Q is hereby incorporated by reference in its entirety in this Item 1.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed under Part I, Item 1A "Risk Factors" in the 2022 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity Securities
During the first quarter of 2023, Mattel did not sell any unregistered equity securities.
Issuer Purchases of Equity Securities
This table provides certain information with respect to Mattel's purchases of its common stock during the first quarter of 2023:
| Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (b) | |||||||||||||||||||
| January 1—31 | 10,654 | $ | 19.64 | — | $ | 203,016,273 | |||||||||||||||||
| February 1—28 | 2,804,219 | 19.24 | 1,841,790 | 169,030,421 | |||||||||||||||||||
| March 1—31 | 7,240 | 18.41 | — | 169,030,421 | |||||||||||||||||||
| Total | 2,822,113 | $ | 19.24 | 1,841,790 | $ | 169,030,421 | |||||||||||||||||
____________________________________
(a)The total number of shares purchased includes 980,323 shares withheld from employees to satisfy minimum tax withholding obligations that occur upon settlement of equity awards, which were not purchased as part of a publicly announced repurchase plan or program.
(b)Mattel's share repurchase program was first announced on July 21, 2003. On July 17, 2013, the Board of Directors authorized Mattel to increase its share repurchase program by $500.0 million. At March 31, 2023, share repurchase authorizations of $169.0 million had not been executed. Repurchases under the program will take place from time to time, depending on market conditions. Mattel's share repurchase program has no expiration date.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
40
Item 6. Exhibits.
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
| Exhibit No. | Exhibit Description | Form | File No. | Exhibit(s) | Filing Date | |||||||||||||||||||||||||||
| Restated Certificate of Incorporation of Mattel, Inc. | 8-K | 001-05647 | 99.0 | May 21, 2007 | ||||||||||||||||||||||||||||
| Amended and Restated Bylaws of Mattel, Inc. | 8-K | 001-05647 | 3.1 | September 19, 2022 | ||||||||||||||||||||||||||||
| Specimen Stock Certificate with respect to Mattel, Inc. | 10-Q | 001-05647 | 4.0 | August 3, 2007 | ||||||||||||||||||||||||||||
10.1+ | Mattel, Inc. Amended and Restated Executive Severance Plan B | 8-K | 001-05647 | 10.1 | March 24, 2023 | |||||||||||||||||||||||||||
10.2+ | Form of Participation Letter Agreement under the Mattel, Inc. Amended and Restated Executive Severance Plan B applicable to Ynon Kreiz, Richard Dickson, and Anthony DiSilvestro | 8-K | 001-05647 | 10.2 | March 24, 2023 | |||||||||||||||||||||||||||
10.3+ | Form of Participation Letter Agreement under the Mattel, Inc. Amended and Restated Executive Severance Plan B | 8-K | 001-05647 | 10.3 | March 24, 2023 | |||||||||||||||||||||||||||
10.4+* | Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan | |||||||||||||||||||||||||||||||
31.0* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||||||||
31.1* | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||||||||
32.0** | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||||||||
101.INS* | Inline XBRL Instance Document | |||||||||||||||||||||||||||||||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||||||||||||||||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||||||||||||||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||||||||||||||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||||||||||||||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||||||||||||||
104* | The cover page from Mattel's Quarterly Report on Form 10-Q for the three months ended March 31, 2023, formatted in Inline XBRL. | |||||||||||||||||||||||||||||||
______________________________________________
| + | Management contract or compensatory plan or arrangement | ||||
| * | Filed herewith. | ||||
| ** | Furnished herewith. This exhibit should not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934. | ||||
41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MATTEL, INC. Registrant | |||||||||||
| By: | /s/ Yoon Hugh | ||||||||||
| Yoon Hugh Senior Vice President and Corporate Controller (Duly Authorized Officer and Chief Accounting Officer) | |||||||||||
Date: May 2, 2023
42
EXHIBIT 10.4
MATTEL, INC.
AMENDED AND RESTATED 2010 EQUITY AND
LONG-TERM COMPENSATION PLAN
1. Purpose. The purpose of the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan (the “Plan”) is to promote the interests of Mattel, Inc., a Delaware corporation (“Mattel”), and its stockholders by enabling the Company to offer an opportunity to employees, Outside Directors, and Consultants to receive grants of equity-based and cash-based incentive awards, so as to better attract, retain, and reward them, to align the individual interests of the employees, Outside Directors and Consultants to those of Mattel stockholders and to provide such individuals with an incentive for outstanding performance to generate superior returns to Mattel stockholders.
2. Definitions. For purposes of the Plan, the following terms shall have the meanings set forth below.
(a) “Affiliate” means a corporation or other entity controlled by, controlling or under common control with, Mattel, other than a Subsidiary. For purposes of determining eligibility for grants of Non-Qualified Stock Options and Stock Appreciation Rights or whether a Participant has experienced a “separation from service” (as such term is defined and used in Code Section 409A), an Affiliate means a “service recipient” (within the meaning of Code Section 409A); provided that such definition of “service recipient” shall be determined by (a) applying Code Section 1563(a)(1), (2) and (3), for purposes of determining a controlled group of corporations under Code Section 414(b), using the language “at least 50 percent” instead of “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2) and (3), and by applying Treasury Regulations Section 1.414(c)-2, for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Code Section 414(c), using the language “at least 50 percent” instead of “at least 80 percent” each place it appears in Treasury Regulations Section 1.414(c)-2, and (b) where the use of the following modified definition is based upon legitimate business criteria, by applying Code Section 1563(a)(1), (2) and (3), for purposes of determining a controlled group of corporations under Code Section 414(b), using the language “at least 20 percent” instead of “at least 80 percent” at each place it appears in Code Section 1563(a)(1), (2) and (3), and by applying Treasury Regulations Section 1.414(c)-2, for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Code Section 414(c), using the language “at least 20 percent” instead of “at least 80 percent” at each place it appears in Treasury Regulations Section 1.414(c)-2.
(b) “Annual Cash Retainer” has the meaning given in Section 15(b).
(c) “Annual Grant” has the meaning given in Section 14(a).
(d) “Annual Meeting” means an annual meeting of stockholders of Mattel.
(e) “Board” means the Board of Directors of Mattel.
(f) “Business Combination” has the meaning given in Section 18(b)(iii).
(g) “Cause” means (i) “Cause” as defined in the Participant’s Individual Agreement, or (ii) if the Participant does not have an Individual Agreement or if it does not define “Cause,” (A) a Participant’s neglect of significant duties he or she is required to perform or a Participant’s violation of a material Company policy; (B) the commission by a Participant of an act of dishonesty, fraud, misrepresentation or other act of moral turpitude; (C) a Participant’s act or omission in the course of his or her employment which constitutes gross negligence; or (D) willful failure by a Participant to obey a lawful direction of the Board or the Company.
(h) “Change in Control” has the meaning given in Section 18(b), as modified by Section 18(c).
(i) “Code” means the United States Internal Revenue Code of 1986, as amended, the United States Treasury Regulations thereunder and other relevant interpretive guidance issued by the United States Internal Revenue Service or the United States Treasury Department. Reference to any specific section of the Code shall be deemed to include such regulations and guidance, as well as any successor provision of the Code.
(j) “Committee” means the committee designated by the Board to administer the Plan in accordance with Section 3(a) below.
(k) “Common Stock” means the common stock of Mattel, $1.00 par value per share, or any security issued in substitution, exchange, or in lieu thereof.
(l) “Company” means Mattel or any successor corporation, together with its Subsidiaries, as well as any Affiliate that is designated for participation in the Plan pursuant to Section 3(e), collectively or individually as the context requires.
(m) “Consultant” means any consultant or adviser engaged to provide services to the Company or any Subsidiary that qualifies as a consultant under the applicable rules of the Securities and Exchange Commission for registration of shares on a Form S-8 Registration Statement.
(n) “Corporate Transaction” has the meaning given in Section 17(a).
(o) “Covered Employee” means any Participant who is or may be a “covered employee” (within the meaning of Code Section 162(m)(3)) in the tax year in which the Company is expected to claim a compensation deduction with respect to any Grant, as determined by the Committee.
(p) “Disability” a Participant’s Severance will be considered to have occurred because of Disability if: (i) in the case of a Participant who was (before his or her Severance) an employee of the Company, there has been a determination that the Participant is permanently disabled and entitled to benefits under the applicable group long-term disability plan of the Company or, if there is no such applicable plan, under any government plan, program or related laws and regulations applicable to the Participant; and (ii) in the case of a Participant who was (before his or her Severance) an Outside Director or other non-employee service provider, the Committee determines that the Participant’s membership on the Board or status as a service provider has terminated as a result of his or her disability. Notwithstanding the foregoing, if a Severance that meets the foregoing definition of Disability is also a Retirement, it shall be treated for all purposes under the Plan as a Retirement and not a Disability. In addition, with respect to an Incentive Stock Option, Disability means a permanent and total disability as defined in Code Section 22(e)(3) and, with respect to all Grants, to the extent Grants are subject to Code Section 409A, “disability” within the meaning of Code Section 409A. For the avoidance of doubt, a Severance that occurs by reason of a Participant’s voluntary termination of his or her employment with the Company during his or her Disability shall not be considered to have occurred because of Disability.
(q) “Disaffiliation” means a Subsidiary’s or Affiliate’s ceasing to be a Subsidiary or Affiliate for any reason (including, without limitation, as a result of a public offering, or a spinoff or sale by Mattel, of the stock of a Subsidiary or Affiliate) or a sale of a division of the Company.
(r) “Dividend Equivalent” means a right, granted pursuant to Section 12, to receive payments, in cash or Common Stock, representing the dividends and other distributions with respect to a specified number of hypothetical shares of Common Stock, as and when such other dividends and other distributions are actually made to holders of Common Stock.
(s) “Exchange Act” means the United States Securities Exchange Act of 1934, as amended and in effect from time to time, or any successor statute.
(t) “Fair Market Value” means, unless a different method or value is determined by the Committee or required under applicable law, the closing price of the Common Stock on the Nasdaq Stock Market at the close of normal trading hours for that day, or, if the Nasdaq Stock Market is closed on that day, the last preceding day on which the Nasdaq Stock Market was open.
(u) “Free-Standing Stock Appreciation Right” means a Stock Appreciation Right not granted in conjunction with an Option.
(v) “Full-Value Grant” means any Grant other than an Option or Stock Appreciation Right.
(w) “Full-Value Share Debiting Rate” has the meaning given in Section 5(b)(i).
(x) “Grant” means an award of an Option, Restricted Stock, Restricted Stock Units, Stock Appreciation Right, Dividend Equivalents, a Performance Award or unrestricted shares of Common Stock under the Plan. All Grants shall be evidenced by, and subject to the terms of, a written agreement, which agreement may (i) include, in the Company’s discretion, restrictive covenants, where lawful, and (ii) define additional Activities Against the Company’s Interest (within the meaning of Section 19(c)). Any reference herein to an agreement in writing shall be deemed to include an electronic writing to the extent permitted by applicable law.
(y) “Incentive Stock Option” means an option to purchase Common Stock that is specifically designated as an incentive stock option under Code Section 422 and that qualifies as such.
(z) “Incumbent Board” has the meaning given in Section 18(b)(ii).
(aa) “Individual Agreement” of a Participant means any individual employment or severance agreement between the Company and the Participant or a Company severance arrangement applicable to the Participant.
(bb) “Involuntary Retirement” means the Severance of a Participant that is classified by the Company in its human resources database as an involuntary separation and that qualifies as a Retirement.
(cc) “Mattel” has the meaning given in Section 1 above.
(dd) “Non-Qualified Stock Option” means an option to purchase Common Stock that is specifically designated as not being an Incentive Stock Option or that is designated as an Incentive Stock Option but fails to qualify as such.
(ee) “Option” means an Incentive Stock Option or a Non-Qualified Stock Option.
(ff) “Outside Director” means a director of Mattel who is not also an employee of the Company.
(gg) “Outstanding Mattel Common Stock” has the meaning given in Section 18(b)(i).
(hh) “Outstanding Mattel Voting Securities” has the meaning given in Section 18(b)(i).
(ii) “Participant” means a person who has received a Grant.
(jj) “Performance Award” means a cash bonus award, stock bonus award, performance award or other incentive award that is paid in cash, shares of Common Stock or a combination of both, awarded under Section 13.
(kk) “Performance Goals” means performance goals established by the Committee in connection with any Grant. Such goals may be based on one or more of the following business criteria with respect to Mattel, any Subsidiary or Affiliate or any of their respective worldwide operations, regional operations, country specific operations and/or subsidiaries, business units, affiliates, corporations, divisions or employees and/or brands, groups of brands or specific brands: net operating profit after taxes (“NOPAT”); NOPAT less a capital charge; return on capital employed; revenue; earnings per share; earnings per share before or after funding for some or all of the Company’s incentive programs; operating profit; operating profit less a charge on one or more of the following items: working capital, inventory or receivables; net income; return on equity; cash flow return on investment; return on invested capital or assets; fair market value of stock; total stockholder return; EBIT; EBITA; EBITDA; OBIT; OBITDA; operating margin, gross margin, cash margin, cash generation; free cash flow; unit volume; market share; sales; asset quality; return on assets; return on operating assets; cost-saving levels; operating income; marketing-spending efficiency; core non-interest income; change in working capital; sales and sales unit volume; strategic partnerships and transactions and marketing initiatives; or any other measure or metric the Committee deems appropriate, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of other companies or to market performance indicators or indices.
(ll) “Person” has the meaning given in Section 18(b)(i).
(mm) “Plan” means this Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan, as it may be amended or amended and restated from time to time.
(nn) “Program” means any program adopted by the Committee pursuant to the Plan containing the terms and conditions intended to govern a specified type of Grant awarded under the Plan and pursuant to which such type of Grant may be awarded under the Plan.
(oo) “Recapture” has the meaning given in Section 19(a).
(pp) “Rescission” has the meaning given in Section 19(a).
(qq) “Restricted Stock” means shares of Common Stock issued pursuant to Section 11 below that are subject to restrictions on ownership.
(rr) “Restricted Stock Units” means a Grant denominated in hypothetical shares of Common Stock granted pursuant to Section 11 below, to be settled, subject to the terms and conditions of the Restricted Stock Units, either by delivery of shares of Common Stock or by the payment of cash based upon the Fair Market Value of a specified number of shares, or a combination.
(ss) “Retirement” means the Severance of a Participant who is an employee of the Company or an Outside Director, other than as a result of the Participant’s death or termination by the Company for Cause, at a time when the Participant has (i) attained at least 55 years of age, and (ii) completed at least ten Years of Service (or five Years of Service for any Grants made under the Plan prior to the date of the annual employee grants made in 2023). Notwithstanding the foregoing, the Committee may establish such other criteria governing the occurrence of a Retirement for purposes of the Plan, in its sole discretion.
(tt) “Rule 16b-3” means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act and as amended from time to time.
(uu) “Section 16 Officer” means a person or entity that is subject to the provisions of Section 16 of the Exchange Act.
(vv) “Section 409A Grant” has the meaning given in Section 20(d).
(ww) “Severance” of a Participant means (i) for purposes of Grants made to a Participant as compensation for services as an employee of the Company, that the Participant has ceased to be an employee of the Company for any reason, regardless of whether the Participant serves as an other service provider to the Company thereafter; provided, however, that a Participant who continues to serve as an Outside Director immediately after such Participant has ceased to be an employee of the Company shall not be considered to have had a Severance with the Company by reason of such Participant ceasing to be an employee of the Company; (ii) for purposes of Grants made to a Participant as compensation for services as an Outside Director, that the Participant has ceased to be an Outside Director for any reason, and is neither employed by, nor providing services to, the Company in any other capacity; and (iii) for purposes of Grants made to a Participant as compensation for services in any capacity other than as an employee of the Company or an Outside Director, that the Participant has ceased (in the sole and absolute judgment and discretion of the Company) to provide such services, and is neither employed by the Company nor serving as an Outside Director. Severance shall be considered to occur at the close of business on the day on which the applicable relationship to the Company ends, whether or not that day is also the Participant’s last day worked (regardless of whether or not his or her Severance is later found to be invalid or in breach of applicable laws, rules and regulations governing the Participant’s employment or the performance of services or any applicable agreement governing the Participant’s employment or the performance of services) and shall not be extended by any notice period; provided, that the Company may in its sole discretion establish in writing a different date on which a particular Participant’s Severance shall be considered to occur. If a Participant is employed by or providing services to a Subsidiary or Affiliate that ceases to be a Subsidiary or Affiliate for any reason (including, without limitation, as a result of a public offering, or a spinoff or sale by the Company, of the stock of a Subsidiary), the relationship of the Participant to the Company as an employee or service-provider, as applicable, shall be considered to have ended as a result of that cessation unless that relationship is transferred to Mattel or one of its continuing Subsidiaries or Affiliates in connection therewith. Notwithstanding the foregoing, with respect to any Grant subject to Code Section 409A (and not exempt therefrom), “Severance” of a Participant means a Participant’s “separation from service” (as such term is defined and used in Code Section 409A).
(xx) “Share Change” has the meaning given in Section 17(a).
(yy) “Stock Appreciation Right” means a right granted pursuant to Section 8 below to receive a payment in cash, shares of Common Stock or any combination thereof with respect to a specified number of shares of Common Stock equal to the excess of the Fair Market Value of the Common Stock on the date the right is exercised over the exercise price of the Stock Appreciation Right.
(zz) “Subsidiary” means any corporation (other than Mattel) in an unbroken chain of corporations beginning with Mattel if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as determined in accordance with the rules of Code Section 424(f).
(aaa) “Substitute Grant” has the meaning given in Section 5(a). Such Substitute Grants shall be on such terms and conditions as the Committee may prescribe, subject to compliance with the Incentive Stock Option requirements of Code Section 422 and the nonqualified deferred compensation requirements of Code Section 409A, where applicable.
(bbb) “Tandem Stock Appreciation Right” means a Stock Appreciation Right granted in conjunction with an Option.
(ccc) “Ten Percent Stockholder” means any person who owns (after taking into account the constructive ownership rules of Code Section 424(d)) more than ten percent of the capital stock of Mattel or of any of its Subsidiaries or “parent corporation” (as defined in Code Section 424(e)).
(ddd) “Term” means the period of time from the date of grant of an Option or Stock Appreciation Right through the latest date on which it may be exercised, as determined by the Committee.
(eee) “Termination” has the meaning given in Section 19(a).
(fff) “2005 Plan” means the Mattel, Inc. 2005 Equity Compensation Plan, as amended.
(ggg) “2010 Annual Meeting” means the Annual Meeting that occurs in 2010.
(hhh) “Years of Service” of a Participants shall mean the aggregate period of time, expressed as a number of whole years and fractions thereof, during which the Participant served without interruption as an employee of the Company and/or an Outside Director; provided, that a period of such service before an interruption shall be included in determining Years of Service to the extent such service is recognized under the Company’s applicable general policy with respect to service recognition.
3. Administration.
(a) The Plan shall be administered by the Compensation Committee of the Board, or such other committee of Board members as the Board may designate from time to time (the “Committee”); provided, that the Committee shall at all times have at least three members; that the members of the Committee shall all qualify as “non-employee directors” for purposes of Rule 16b-3, and shall meet the independence requirements of the listing standards of the Nasdaq Stock Market; and that the Committee may include all members of the Board, if they all meet the foregoing requirements, provided, that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 3(a) or otherwise provided in any charter of the Committee.
(b) The Committee may conduct its meetings in person or by telephone. Except to the extent provided in the charter of the Committee, one-third of the members of the Committee shall constitute a quorum, and any action shall constitute the action of the Committee if it is authorized by a majority of the members present at any meeting or by all of the members in writing without a meeting.
(c) The Committee is authorized to construe and interpret the Plan, the rules and regulations under the Plan, and all Grants under the Plan; and to adopt, amend and rescind rules and procedures relating to the administration of the Plan as, in its opinion, may be advisable in the administration of the Plan; and, except as provided herein, to make all other determinations deemed necessary or advisable under the Plan, including, except to the extent prohibited in Section 18(a) of the Plan, the ability to provide for the acceleration of Grants under the Plan. All actions of the Committee in connection with the construction, interpretation and administration of the Plan and the Grants shall be final, conclusive, and binding upon all parties.
(d) The Committee may, except to the extent prohibited by its charter, applicable laws or regulations or the listing standards of the Nasdaq Stock Market, allocate all or any portion of its responsibilities and powers to any one or more of its members or to any other person or persons selected by it, including without limitation to the Chief Executive Officer of Mattel. Any such delegation may be limited or indefinite in duration, as the Committee shall determine, but shall be subject to revocation by the Committee, at any time. Notwithstanding the foregoing, the Committee shall not make any delegation of its authority with regard to the granting of Grants to Section 16 Officers, except to the extent permitted by Rule 16b-3.
(e) The Committee may, but need not, designate any Affiliate to participate in the Plan.
(f) The Committee, in its sole discretion, shall have the power and authority to adopt one or more Programs under the Plan from time to time containing such terms and conditions as the Committee may determine or deem appropriate in its discretion.
4. Duration of Plan.
(a) The 2010 Equity and Long-Term Compensation Plan was originally effective as of the date of the 2010 Annual Meeting (the “Effective Date”); this Amended and Restated 2010 Equity and Long-Term Compensation Plan shall be effective as of March 22, 2023.
(b) Unless terminated earlier pursuant to Section 22, the Plan shall terminate on March 26, 2025, except with respect to Grants then outstanding.
5. Shares Available; Vesting Limitations.
(a) Aggregate Limit. The maximum number of shares of Common Stock which may be issued pursuant to Grants under the Plan shall be equal to the sum of (x) 130.2 million shares of Common Stock and (y) the number of shares of Common Stock which as of the Effective Date remained available for issuance under the 2005 Plan (the “Overall Share Limit”). The number of shares authorized for grant as Incentive Stock Options shall be no more than the Overall Share Limit. The foregoing shall be subject to adjustment as provided below in this Section 5 and in Section 17. Notwithstanding the foregoing, if a Grant (a “Substitute Grant”) is made pursuant to the conversion, replacement or adjustment of outstanding equity awards in connection with any acquisition, merger or other business combination or similar transaction involving the Company, the Overall Share Limit shall not be reduced as a result, to the extent the Substitute Grant is permitted without stockholder approval by the listing standards of the Nasdaq Stock Market.
(b) General Share-Counting Rules.
(i) A Full-Value Grant shall reduce the number of shares available under the Plan by the Full-Value Share Debiting Rate multiplied by the number of shares that are subject to the Grant, and an Option or Stock Appreciation Right shall reduce the number of shares available under the Plan by one share for each share that is subject to the Grant (for the avoidance of doubt, in the event that a Stock Appreciation Right may be settled in shares, the number of shares deemed subject to the Grant for purposes of this sentence shall be the number of shares with respect to which such Stock Appreciation Right may be exercised and not the number of shares that may be distributed in settlement of such exercise). The “Full-Value Share Debiting Rate” means:
(A) with respect to Full-Value Grants granted prior to March 1, 2019, three (3.0);
(B) with respect to Full- Value Grants granted on or after March 1, 2019 but on or prior to March 1, 2020, two and seven-tenths (2.7);
(C) with respect to Full-Value Grants granted after March 1, 2020 but on or prior to March 1, 2021, two and thirty-five-hundredths (2.35);
(D) with respect to Full-Value Grants granted after March 1, 2021 but on or prior to March 1, 2022, one and nine-tenths (1.9); and
(E) with respect to Full-Value Grants granted after March 1, 2022, one and five-tenths (1.5).
(ii) Notwithstanding anything to the contrary contained herein, the following shares of Common Stock shall be counted against the number of shares available under the Plan and shall not be added back to the shares authorized for grant under this Section 5: (A) shares tendered by the Participant in payment of the grant or exercise price of an Option or other Grant, (B) shares tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to a Grant and (C) shares purchased on the open market with the cash proceeds from the exercise of Options. To the extent that the Company grants Restricted Stock, any shares subject to the Restricted Stock repurchased by the Company under Section 11(c)(iii) at the same price paid by the Participant so that such shares are returned to the Company shall again be available for Grants.
(c) Addbacks Relating to Options and Stock Appreciation Rights. If any Option (with or without a Tandem Stock Appreciation Right) or Free-Standing Stock Appreciation Right is forfeited or otherwise terminates or expires without having been exercised, or is settled for cash, the shares subject to that Grant shall again be available for Grants under the Plan. Notwithstanding the provisions of this Section 5, no shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Code Section 422.
(d) Addbacks Relating to Full-Value Grants. To the extent that a Full-Value Grant is forfeited or otherwise terminates or expires without shares having been issued, or is settled for cash, the number of shares available under the Plan shall be increased by the Full-Value Share Debiting Rate actually used for such Full-Value Grant to reduce the number of shares available under the Plan, multiplied by the number of shares subject to such Full-Value Grant that is forfeited, not issued or is settled in cash.
(e) Individual Limit. Notwithstanding any provision in the Plan to the contrary, subject to adjustment as provided below in Section 17, the maximum number of shares as to which Grants (i.e., Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Dividend Equivalents, Performance Awards or unrestricted shares of Common Stock) may be made to a single Participant in a single calendar year is five million, and the maximum aggregate amount of cash that may be paid in cash during any calendar year with respect to one or more cash-based Grants payable is $20,000,000. Notwithstanding any provision in the Plan to the contrary, the sum of the aggregate grant date fair value of equity-based Grants and the amount of any cash-based Grants or other cash fees that may be granted or paid to a single Outside Director as compensation for services as an Outside Director in a single calendar year shall not exceed $750,000.
(f) Stock Distributed. Any Common Stock distributed pursuant to a Grant may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.
(g) Award Vesting Limitations. Notwithstanding any other provision of the Plan to the contrary, but subject to Sections 17 and 18 of the Plan, Grants (excluding for this purpose any Substitute Grants or shares delivered in lieu of fully vested cash-denominated Grants) made under the Plan on or after May 17, 2018 shall vest no earlier than the first anniversary of such Grant’s date of grant; provided, however, that, notwithstanding the foregoing, Grants that result in the issuance of an aggregate of up to 5% of the shares of Common Stock available pursuant to this Section 5 (as such number of shares of Common Stock may be increased from time to time in accordance with the Plan) may be granted to any one or more Participants without respect to such minimum vesting provisions. For purposes of Grants to non-employee directors, a vesting period will be deemed to be one year if it runs from the date of one Annual Meeting to the next Annual Meeting; provided the next Annual Meeting is at least 50 weeks after the immediately preceding year’s Annual Meeting. Notwithstanding the foregoing, nothing in this Section 5(g) shall preclude or limit any Grant or other arrangement (or any action by the Committee) from providing for accelerated vesting of such Grant in connection with or following a Participant’s death, Disability or Severance.
6. Eligibility. Persons eligible to receive Grants under the Plan shall consist of employees of the Company, Outside Directors, and Consultants. However, Incentive Stock Options may only be granted to individuals who are employees of Mattel or a Subsidiary, and Grants to Outside Directors for service as such shall be made only pursuant to Sections 14 and 15 below.
7. Options.
(a) Grants of Options under the Plan shall be made on such terms and in such form as the Committee may approve, which shall not be inconsistent with the provisions of the Plan, but which need not be identical from Option to Option.
(b) The exercise price per share of Common Stock purchasable under an Option shall be set forth in the Option. Except in the case of Substitute Grants, the per-share exercise price of a Non-Qualified Stock Option shall be no less than 100% of the Fair Market Value of a share of Common Stock on the date of grant, and the per-share exercise price of an Incentive Stock Option, shall be no less than:
(i) 110% of the Fair Market Value of a share of Common Stock on the date of grant in the case of a Ten Percent Stockholder; or
(ii) 100% of the Fair Market Value of a share of Common Stock on the date of grant in the case of any employee who is not a Ten Percent Stockholder.
(c) Except in the case of Substitute Grants, the aggregate Fair Market Value (determined as of the date of grant) of the number of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000 or such other limit as may be required by Code Section 422.
(d) The timing and conditions for vesting and/or exercisability of Options shall be determined by the Committee, and may include continued services to the Company for a specified period and/or the achievement of one or more Performance Goals, or such other events or requirements as the Committee may determine.
8. Stock Appreciation Rights.
(a) Stock Appreciation Rights may be granted as Tandem Stock Appreciation Rights in conjunction with all or part of an Option granted under the Plan, or as Free-Standing Stock Appreciation Rights. Tandem Stock Appreciation Rights associated with Non-Qualified Stock Options may be granted either at the time the Non-Qualified Stock Option is granted or thereafter. Tandem Stock Appreciation Rights associated with Incentive Stock Options may be granted only at the time the Incentive Stock Option is granted.
(b) A Tandem Stock Appreciation Right shall have the same exercise price as, and shall vest, be exercisable and terminate, at the same time as the associated Option. The exercise of a Tandem Stock Appreciation Right in whole or in part shall result in the termination of the associated Option to the same extent, and vice versa.
(c) Except in the case of Substitute Grants, the per-share exercise price of a Free-Standing Stock Appreciation Right shall be no less than 100% of the Fair Market Value of a share of Common Stock on the date of grant. The timing and conditions for vesting and/or exercisability of a Free-Standing Stock Appreciation Right shall be determined by the Committee, and may be conditioned upon continued services to the Company and/or the achievement of one or more Performance Goals, or such other events or requirements as the Committee may determine.
9. Exercise of Options and SARs.
(a) Options and Stock Appreciation Rights shall be exercised by following such procedures as may be established by Mattel from time to time, including through any automated system that Mattel may establish for itself or using the services of a third party, such as a system using an internet website or interactive voice response. Such procedures may be different for different Participants, different groups of Participants, and/or different Grants.
(b) In order to exercise an Option, the holder thereof must make full payment of the exercise price in accordance with such methods as the Committee may approve from time to time. As of the Effective Date, the following methods by which payment may be made are:
(i) cash; and
(ii) by the delivery to Mattel or its designated agent of a written or electronic notice that the Participant has placed a market sell order with a broker acceptable to the Company with respect to shares of Common Stock then issuable upon exercise of an Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided, that payment of such proceeds is then made to the Company upon settlement of such sale.
(c) The Committee may establish such procedures as it deems appropriate for the exercise of Options and Stock Appreciation Rights (i) by the guardian or legal representative of a Participant who is incapacitated (regardless of whether such incapacity constitutes Disability), and (ii) by a transferee thereof as contemplated by Section 16.
10. Termination of Options and Stock Appreciation Rights; Effect of Severance.
(a) Each Option and Stock Appreciation Right shall terminate not later than the end of its Term. Unless a shorter term is specifically provided for by the Committee, the Term of an Option or Stock Appreciation Right shall end on the tenth anniversary of the date of grant or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, on the fifth anniversary of the date of grant.
(b) Except to the extent the Committee specifically establishes otherwise for an Option or Stock Appreciation Right, subject to Section 19 (including Section 19A) below, and except as otherwise required by an Individual Agreement, the consequences of the Severance of a Participant shall be as follows:
(i) in the case of the Participant’s Severance for Cause, all of the Participant’s then-outstanding Options and Stock Appreciation Rights (whether vested or unvested) shall terminate immediately;
(ii) in the case of the Participant’s Severance as a result of his or her Retirement, death or Disability (A) all of the Participant’s then-outstanding Options and Stock Appreciation Rights that were granted at least six months before the date of Severance shall become fully vested and exercisable immediately, and shall remain exercisable until the earlier of (I) the fifth anniversary of the date of Severance and (II) the end of the applicable Term, (B) all of the Participant’s other then-outstanding vested Options and Stock Appreciation Rights shall remain exercisable until the earlier of (I) the 90th day after the date of the Severance and (II) the end of the applicable Term, and (C) all of the Participant’s other then-outstanding unvested Options and Stock Appreciation Rights shall terminate immediately; and
(iii) in the case of the Participant’s Severance for any other reason, (A) all of the Participant’s then-outstanding vested Options and Stock Appreciation Rights shall remain exercisable until the earlier of (I) the 90th day after the date of the Severance and (II) the end of the applicable Term, and (B) all of the Participant’s then-outstanding unvested Options and Stock Appreciation Rights shall terminate immediately.
(c) Notwithstanding the foregoing, except to the extent the Committee specifically establishes otherwise for an Option or Stock Appreciation Right and except as otherwise required by an Individual Agreement, the 90-day periods referred to in clauses (ii) and (iii) of Section 10(b) above shall be extended to a two-year period if the Severance occurs during the 24-month period following a Change in Control.
11. Restricted Stock and Restricted Stock Units.
(a) In General. The Committee may issue Grants of Restricted Stock and Restricted Stock Units upon such terms and conditions as it may deem appropriate, which terms need not be identical for all such Grants. The timing and conditions for vesting of such Grants shall be determined by the Committee, and may include continued services to the Company for a specified period and/or the achievement of one or more Performance Goals, or such other events or requirements as the Committee may determine.
(b) Restricted Stock in General. Restricted Stock may be sold to Participants, or it may be issued to Participants without the receipt of any consideration, to the extent permitted by applicable laws and regulations. If the Participant is required to give any consideration, the payment shall be in the form of cash or such other form of consideration as the Committee shall deem acceptable, such as the surrender of outstanding shares of Common Stock owned by the Participant. A Participant may not assign or alienate his or her interest in the shares of Restricted Stock prior to vesting. Otherwise, the Participant shall have all of the rights of a stockholder of Mattel with respect to the Restricted Stock, including the right to vote the shares and to receive any dividends (subject to Section 12(a) of the Plan).
(c) Consequences of Severance for Restricted Stock. Except to the extent the Committee specifically establishes otherwise for a Grant of Restricted Stock, subject to Section 19 (including Section 19A) below, and except as otherwise required by an Individual Agreement, the consequences of the Severance of a Participant shall be as follows:
(i) in the case of the Participant’s Severance as a result of his or her death or Disability, all of the Participant’s then-outstanding unvested Restricted Stock that was granted at least six months before the date of Severance shall be immediately vested and all of the Participant’s other then-outstanding unvested Restricted Stock shall be immediately forfeited; and
(ii) in all other cases, all of the Participant’s then-outstanding unvested Restricted Stock shall be immediately forfeited.
(iii) to the extent a price was paid by the Participant for the Restricted Stock, upon the Participant’s Severance during the restriction period of the Restricted Stock, the Company shall have the right to repurchase from the Participant any unvested Restricted Stock then subject to restrictions at a cash price equal to the price per share paid by the Participant for such Restricted Stock, or such other amount as may be specified in the applicable Program or Restricted Stock agreement.
(d) Restricted Stock Units. A Participant may not assign or alienate his or her interest in Restricted Stock Units, and shall not have any of the rights of a stockholder of Mattel with respect to the Restricted Stock Units unless and until shares of Common Stock are actually delivered to the Participant in settlement thereof. Except to the extent the Committee establishes otherwise for a Grant of Restricted Stock Units, each Restricted Stock Unit shall be settled no later than the fifteenth day of the third month after the end of the calendar year in which such Restricted Stock Unit ceases to be subject to a “substantial risk of forfeiture” within the meaning of Code Section 409A. To the extent that settlement of a Restricted Stock Unit is at a later date, the terms and conditions of the Restricted Stock Unit shall be established and interpreted in accordance with Section 20 below.
(e) Consequences of Severance for Restricted Stock Units. Except to the extent the Committee specifically establishes otherwise for a Grant of Restricted Stock Units, subject to Section 19 (including Section 19A) below, and except as otherwise required by an Individual Agreement, the consequences of the Severance of a Participant shall be as follows:
(i) in the case of the Participant’s Severance for Cause, all of the Participant’s then-outstanding unvested Restricted Stock Units shall be immediately forfeited;
(ii) in the case of the Participant’s Severance as a result of his or her Involuntary Retirement, death or Disability, all of the Participant’s then-outstanding unvested Restricted Stock Units that were granted at least six months before the date of Severance shall be immediately vested and settled in cash or Common Stock, as provided in the terms thereof; and
(iii) in all other cases, all of the Participant’s then-outstanding unvested Restricted Stock Units shall be immediately forfeited.
12. Dividends and Dividend Equivalents.
(a) Notwithstanding anything herein to the contrary, the Committee may make any and all dividends and distributions with respect to Grants under the Plan (including, but not limited to, Grants of Restricted Stock) subject to vesting conditions, which may be the same as or different from the vesting conditions applicable to the underlying Grant; provided, that, notwithstanding anything herein to the contrary, any dividends payable with respect to any Grant or any portion of a Grant may only be paid to the Participant to the extent that the vesting conditions applicable to such Grant or portion thereof are subsequently satisfied and the Grant or portion thereof to which such dividend relates vests, and any dividends with respect to any Grant or any portion thereof that does not become vested shall be forfeited.
(b) The Committee may include Dividend Equivalents on shares of Common Stock that are subject to Grants, and may make separate Grants of Dividend Equivalents with respect to a specified number of hypothetical shares. The Committee shall specify in the Grant such terms as it deems appropriate regarding the Dividend Equivalents, including when and under what conditions the Dividend Equivalents shall be paid, whether any interest accrues on any unpaid Dividend Equivalents, and whether they shall be paid in cash or in shares of Common Stock or a combination thereof; provided, that, notwithstanding anything herein to the contrary, Dividend Equivalents with respect to Grants (or any portion thereof) that are not vested at the time that the underlying dividend is paid may only be paid to the Participant to the extent that the applicable vesting conditions are subsequently satisfied and the Grant (or portion thereof) vests, and any Dividend Equivalents with respect to any portion of a Grant that does not become vested shall be forfeited. Unless the Committee otherwise specifies in the Grant, Dividend Equivalents shall be paid to the Participant no later than the later of the fifteenth day of the third month following the end of the calendar year in which the Dividend Equivalents are credited or the fifteenth day of the third month following the end of the calendar year in which the related Grant vests. Any Dividend Equivalents shall be treated separately from the right to other amounts under the Grant for purposes of the designation of time and form of payment required by Code Section 409A.
(c) Notwithstanding anything in the foregoing to the contrary, neither dividends nor Dividend Equivalents shall be granted, paid or payable in respect of outstanding Options or Stock Appreciation Rights.
13. Performance Awards.
(a) The Committee is authorized to grant Performance Awards. The value of Performance Awards may be linked to any one or more of the Performance Goals or other specific criteria determined by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Performance Awards may be paid in cash, shares of Common Stock, or a combination of both, as determined by the Committee.
(b) Without limiting Section 13(a), the Committee may grant Performance Awards in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee.
(c) With respect to Performance Awards in the form of a cash bonus payable upon the attainment of objective Performance Goals, the Committee shall have the right to alter the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including the assessment of individual or corporate performance for the performance period, in determining the amount earned pursuant to such Performance Award.
14. Outside Directors. Grants may be made to Outside Directors only in accordance with this Section 14 and Section 15(b). The terms and conditions of Grants to Outside Directors shall be the same as those provided for elsewhere in the Plan, except as specifically provided otherwise in this Section 14.
(a) Effective on the date of each Annual Meeting, each Outside Director shall receive a Grant (the “Annual Grant”) of (i) Non-Qualified Stock Options and/or (ii) Restricted Stock, and/or (iii) Restricted Stock Units as determined by the Committee or the Board pursuant to the written Summary of Compensation of the Non-Employee Members of the Board of Directors, or any successor summary or policy.
(b) Each Option granted to an Outside Director pursuant to this Section 14 shall have a per-share exercise price equal to the Fair Market Value of a share of Common Stock on the date of grant. The applicable Outside Director’s Option agreement shall govern the treatment of Annual Grants of Options upon an Outside Director’s Severance.
(c) The applicable Outside Director’s Restricted Stock agreement and Restricted Stock Unit agreement shall govern the treatment of Annual Grants of Restricted Stock and Restricted Stock Units, respectively, upon an Outside Director’s Severance.
(d) As of the Effective Date, (i) Grants made to Outside Directors pursuant to this Section 14 shall be in lieu of all future Grants to Outside Directors under Section 13 of the 2005 Plan, and (ii) the provisions of this Section 14 shall replace and supersede the relevant provisions of Section 13 of the 2005 Plan.
15. Bonus Grants and Grants in Lieu of Compensation.
(a) The Committee is authorized to grant shares of Common Stock as a bonus, or to make Grants in lieu of Company obligations to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements. Such grants shall be upon such terms and conditions as the Committee may deem appropriate.
(b) Each Outside Director shall be eligible to be granted shares of Common Stock in lieu of all or a portion of his or her annual cash retainer fee for service on the Board (“Annual Cash Retainer”), subject to the following terms and conditions.
(i) An Outside Director who has timely elected in advance, in accordance with the policies and procedures adopted by Mattel from time to time, to receive shares of Common Stock in lieu of all or a portion of such Outside Director’s Annual Cash Retainer with regard to a given year shall be granted shares of Common Stock on the date the Annual Cash Retainer would have otherwise been paid by Mattel to the Outside Director. Such an election by the Outside Director shall be irrevocable with respect to the Annual Cash Retainer for such year.
(ii) The number of shares of Common Stock granted pursuant to this Section 15(b) shall be the number of whole shares of Common Stock equal to the amount of the Outside Director’s Annual Cash Retainer which the Outside Director has elected pursuant to clause (i) above to be payable in shares of Common Stock, divided by the Fair Market Value per share on the date of grant.
16. Non-transferability of Grants.
(a) No Option or Free-Standing Stock Appreciation Right shall be transferable by a Participant other than (i) upon the death of the Participant, or (ii) in the case of a Non-Qualified Stock Option or Free-Standing Stock Appreciation Right, as otherwise expressly permitted by the Committee; provided, however, that in no event may an Option or Free-Standing Stock Appreciation Right be transferable for consideration absent stockholder approval. A Tandem Stock Appreciation Right shall be transferable only with the related Option as permitted by the preceding sentence. Any Option or Stock Appreciation Right shall be exercisable, subject to the terms of the Plan, only by the applicable Participant, the guardian or legal representative of such Participant as provided in Section 9(c), or any person to whom such Option or Stock Appreciation Right is permissibly transferred pursuant to this Section 16(a), it being understood that the term “Participant” includes such guardian, legal representative and other transferee; provided, that references to employment or other provision of services to the Company (such as the terms “Disability,” “Retirement” and “Severance”) shall continue to refer to the employment of, or provision of services by, the original Participant.
(b) No other Grant shall be transferable except as specifically provided in the Grant; provided, however, that in no event may a Grant be transferable for consideration absent stockholder approval.
(c) The Company may establish such procedures for making beneficiary designations or such other rules and procedures as may be appropriate under applicable laws and regulations for the treatment of Grants upon the death of a Participant.
17. Adjustments.
(a) In the event of (i) a stock dividend, declaration of an extraordinary cash dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of Mattel (each, a “Share Change”), or (ii) a merger, consolidation, acquisition of property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, Disaffiliation, or similar event affecting Mattel or any of its Subsidiaries or Affiliates (each, a “Corporate Transaction”), the Committee or the Board shall make such substitutions or adjustments as it deems appropriate and equitable to (A) the aggregate number and kind of shares of Common Stock or other securities reserved for Grants under the Plan, (B) the limitations set forth in Sections 5(a) and 5(e), (C) the number and kind of shares or other securities subject to outstanding Grants, (D) the exercise price of outstanding Options and Stock Appreciation Rights.
(b) In the case of Corporate Transactions, the adjustments pursuant to Section 17(a) may include, without limitation, (1) the cancellation of outstanding Grants in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Grants, as determined by the Committee or the Board in its sole discretion (it being understood that in the case of a Corporate Transaction with respect to which stockholders of Common Stock receive consideration other than publicly traded equity securities of the ultimate surviving entity, any such determination by the Committee that the value of an Option or Stock Appreciation Right shall for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each share pursuant to such Corporate Transaction over the exercise price of such Option or Stock Appreciation Right shall conclusively be deemed valid); (2) the substitution of other property (including, without limitation, cash or other securities of Mattel and securities of entities other than Mattel) for the shares subject to outstanding Grants; and (3) in connection with any Disaffiliation, arranging for the assumption of Grants, or replacement of Grants with new awards based on other property or other securities (including, without limitation, other securities of Mattel and securities of entities other than Mattel), by the affected Subsidiary or Affiliate by the entity that controls the affected Subsidiary, Affiliate or division following such Disaffiliation (as well as any corresponding adjustments to Grants that remain based upon Company securities).
(c) Notwithstanding the foregoing: (i) any adjustments made pursuant to Section 17(a) to Grants that are considered “deferred compensation” within the meaning of Code Section 409A shall be made in compliance with the requirements of Code Section 409A; (ii) any adjustments made pursuant to Section 17(a) to Grants that are not considered “deferred compensation” subject to Code Section 409A shall be made in such a manner as to ensure that after such adjustment, the Grants either (A) continue not to be subject to Code Section 409A or (B) comply with the requirements of Code Section 409A; and (iii) in any event, neither the Committee nor the Board shall have the authority to make any adjustments pursuant to Section 17(a) to the extent the existence of such authority would cause a Grant that is not intended to be subject to Code Section 409A at the time of Grant to be subject thereto.
18. Effect of Change in Control.
(a) In the event of a Change in Control, (i) with respect to Grants that are not Performance Vesting Awards (as defined below), unless a Qualifying Replacement Award is provided to the applicable Participant to replace the applicable Grant, any such Grant that is an Option or Stock Appreciation Right then outstanding shall vest and be fully exercisable as of the date of the Change in Control, any such Grant of Restricted Stock or Restricted Stock Units then outstanding shall be fully vested as of the date of the Change in Control, and any such Grant of Restricted Stock Units then outstanding shall (subject to Section 18(c)) be settled immediately (in cash or Common Stock, determined in the manner provided for in the terms thereof, but subject to Section 17); (ii) with respect to Grants that are not Performance Vesting Awards (other than Performance Vesting Awards that are replaced by Qualifying Replacement Awards and cease to be subject to performance-based vesting conditions), if a Qualifying Replacement Award is provided to the applicable Participant to replace such Grant, then, in the event that the Participant incurs a Severance by the Company without Cause within the 24-month period immediately following the Change in Control, then, any such Qualifying Replacement Award that relates to (x) Options or Stock Appreciation Rights outstanding as of immediately prior to the Participant’s Severance shall become fully vested and exercisable as of the date of such Severance and remain exercisable until the earlier of (A) the second anniversary of the Severance and (B) the end of the applicable Term, and (y) Restricted Stock or Restricted Stock Units outstanding as of immediately prior to the Participant’s Severance shall be fully vested as of the date of such Severance, and any such Qualifying Replacement Award that relates to Restricted Stock Units shall (subject to Section 18(c)) be settled immediately upon such Severance (in cash or Common Stock, determined in the manner provided for in the terms thereof, but subject to Section 17); and (iii) unless a Qualifying Replacement Award is provided to the applicable Participant to replace the applicable Grant, any Performance Vesting Award granted on or after May 17, 2018 shall, immediately prior to, and subject to the consummation of, such Change in Control, vest and (subject to Section 18(c)) be settled immediately (in cash or Common Stock, determined in the manner provided for in the terms thereof, but subject to Section 17) based on the greater of (x) actual performance through the date of the Change in Control or (y) prorated target performance, with the number of shares based on a fraction, the numerator which is the number of days elapsed in the applicable performance period through the date of the Change in Control, and the denominator of which is the total number of days in the applicable performance period; in each case, subject to the terms of any Grant, Individual Agreement, Program or Section 18(c). Notwithstanding the foregoing, except to the extent that a Qualifying Replacement Award is not provided to the applicable Participant to replace the applicable Grant as set forth in this Section 18(a), (1) in no event shall any Grant granted on or after May 17, 2018 provide for accelerated vesting or exercisability (as applicable) solely upon the occurrence of a Change in Control, and (2) in no event shall either the Board or the Committee accelerate the vesting or exercisability (as applicable) of any Grant, in whole or in part, solely upon the occurrence of a Change in Control. For purposes of the Plan, “Performance Vesting Award” means a Grant that is subject to performance-based vesting.
(b) “Change in Control” means:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (A) the then-outstanding shares of Common Stock (the “Outstanding Mattel Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of Mattel entitled to vote generally in the election of directors (the “Outstanding Mattel Voting Securities”); provided, that for purposes of this subsection (i), the following shall not constitute a Change in Control: (1) any acquisition directly from Mattel, (2) any acquisition by Mattel or any corporation controlled by Mattel, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Mattel or any corporation controlled by Mattel, (4) any acquisition by a Person of 35% or more of either the Outstanding Mattel Common Stock or the Outstanding Mattel Voting Securities as a result of an acquisition of Common Stock by Mattel which, by reducing the number of shares of Common Stock outstanding, increases the proportionate number of shares beneficially owned by such Person to 35% or more of either the Outstanding Mattel Common Stock or the Outstanding Mattel Voting Securities; provided, that if a Person shall become the beneficial owner of 35% or more of either the Outstanding Mattel Common Stock or the Outstanding Mattel Voting Securities by reason of a share acquisition by Mattel as described above and shall, after such share acquisition by Mattel, become the beneficial owner of any additional shares of Common Stock, then such acquisition shall constitute a Change in Control or (E) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 18(b); or
(ii) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Mattel’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) Consummation by Mattel of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Mattel or the acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Mattel Common Stock and Outstanding Mattel Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Mattel or all or substantially all of Mattel’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Mattel Common Stock and Outstanding Mattel Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of Mattel or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of Mattel of a complete liquidation or dissolution of Mattel.
(c) Notwithstanding the foregoing, with respect to any Grant that provides for the deferral of compensation and is subject to Code Section 409A, (i) if a Change in Control constitutes a payment event with respect to such Grant, the transaction or event described in Section 18(b) with respect to such Grant must, for purposes of such payment event, also constitute a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5) to the extent required by Section 409A, and (ii) the settlement provisions of this Section 18 shall not apply to such Grant and the settlement of such Grant shall be governed by the applicable Grant agreement, it being understood that this Section 18(c) shall not limit application of the vesting provisions of this Section 18 to any such Grant.
(d) “Qualifying Replacement Award” means an award that (i) is of the same type as the Grant it is replacing (the “Replaced Award”), (ii) has a value that is no less than the value of such Replaced Award as of the date of the applicable Change in Control, (iii) if such Replaced Award was an equity-based award, relates to publicly traded equity securities of the Company or of the ultimate parent entity, as applicable, following such Change in Control, (iv) contains terms relating to vesting (including with respect to a Severance) that are no less favorable to the applicable Participant than those of such Replaced Award, and (v) has other terms and conditions that are no less favorable to the applicable Participant than the terms and conditions of such Replaced Award as of the date of such Change in Control. Without limiting the generality of the foregoing, a Qualifying Replacement Award may take the form of a continuation of the applicable Replaced Award if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this paragraph are satisfied shall be made by the Committee, as constituted immediately before the applicable Change in Control, in its sole discretion.
19. Termination, Rescission and Recapture.
(a) Each Grant under the Plan is intended to align the Participant’s long-term interests with the long-term interests of the Company. If a Participant engages in certain activities discussed below, the Participant is acting contrary to the long-term interests of the Company. Accordingly, except as otherwise expressly provided in the Grant or as otherwise required by an Individual Agreement or Program, Mattel may terminate any outstanding, unexercised, unexpired, unpaid, or deferred Grant (“Termination”), rescind any exercise, payment or delivery pursuant to the Grant (“Rescission”) or recapture any cash or any Common Stock (whether restricted or unrestricted) or proceeds from the Participant’s sale of Common Stock acquired pursuant to the Grant (“Recapture”), as more fully described below.
(b) Each Participant shall comply with any agreement or undertaking regarding inventions, intellectual property rights, and/or proprietary or confidential information or material that the Participant signed or otherwise agreed to in favor of the Company.
(c) A Participant will be acting contrary to the long-term interests of the Company if, during the restricted period set forth below, a Participant engages in any of the following activities in, or directed into, any State, possession or territory of the United States of America or any country in which the Company operates, sells products or does business:
(i) while employed by the Company, the Participant renders services to or otherwise directly or indirectly engages in or assists, any organization or business that is or is working to become competitive with the Company;
(ii) while employed by the Company or at any time thereafter, the Participant (A) uses any confidential information or trade secrets of the Company to render services to or otherwise engage in or assist any organization or business that is or is working to become competitive with the Company or (B) solicits away or attempts to solicit away any customer or supplier of the Company if in doing so, the Participant uses or discloses any of the Company’s confidential information or trade secrets;
(iii) while employed by the Company, the Participant solicits or attempts to solicit any non-administrative employee of the Company to terminate employment with the Company or to perform services for any organization or business that is or is working to become competitive with the Company; or
(iv) during a period of one year following the Participant’s termination of employment with the Company, the Participant solicits or attempts to solicit any non-administrative employee of the Company to terminate employment with the Company or to perform services for any organization or business that is or is working to become competitive with the Company.
The activities described in this Section 19(c) are collectively referred to as ‘Activities Against the Company’s Interest.’ Additional ‘Activities Against the Company’s Interest’ may be defined in a Participant’s Grant, Individual Agreement, or Program.
(d) If Mattel determines, in its sole and absolute discretion, that: (i) a Participant has violated any of the requirements set forth in Section 19(b) above or (ii) a Participant has engaged in any Activities Against the Company’s Interest (the date on which such violation or activity first occurred being referred to as the ‘Trigger Date’), then Mattel may, in its sole and absolute discretion, impose a Termination, Rescission and/or Recapture of any or all of the Participant’s Grants or the proceeds received by the Participant therefrom, provided that such Termination, Rescission and/or Recapture shall not apply to a Full-Value Grant to the extent that both of the following occurred earlier than six months prior to the Trigger Date: (A) such Full-Value Grant vested and (B) Common Stock was delivered and/or cash was paid pursuant to such Full-Value Grant; and provided, further, that such Termination, Rescission and/or Recapture shall not apply to an Option or a Stock Appreciation Right to the extent that such Option or Stock Appreciation Right was exercised earlier than six months prior to the Trigger Date. Within ten days after receiving notice from Mattel that Rescission or Recapture is being imposed on any Grant, the Participant shall deliver to Mattel the cash or shares of Common Stock acquired pursuant to such Grant, or, if Participant has sold such Common Stock, the gain realized, or payment received as a result of the rescinded exercise, payment, or delivery; provided, that if the Participant returns Common Stock that the Participant purchased pursuant to the exercise of an Option (or the gains realized from the sale of such Common Stock), Mattel shall promptly refund the exercise price, without earnings, that the Participant paid for the Common Stock. Any payment by the Participant to Mattel pursuant to this Section 19(d) shall be made either in cash or by returning to Mattel the number of shares of Common Stock that the Participant received in connection with the rescinded exercise, payment, or delivery. It shall not be a basis for Termination, Rescission or Recapture if after a Participant’s Severance, the Participant purchases, as an investment or otherwise, stock or other securities of such an organization or business, so long as (i) such stock or other securities are listed upon a recognized securities exchange or traded over-the-counter, and (ii) such investment does not represent more than a five percent equity interest in the organization or business.
(e) Upon exercise of an Option or Stock Appreciation Right or payment or delivery of cash or Common Stock pursuant to a Grant, the Participant shall, if requested by the Company, certify on a form acceptable to Mattel that he or she is in compliance with the terms and conditions of the Plan and, if a Severance has occurred, shall state the name and address of the Participant’s then-current employer or any entity for which the Participant performs business services and the Participant’s title, and shall identify any organization or business in which the Participant owns a greater-than-five-percent equity interest.
(f) Notwithstanding the foregoing provisions of this Section 19, Mattel has sole and absolute discretion not to require Termination, Rescission and/or Recapture, and its determination not to require Termination, Rescission and/or Recapture with respect to any particular act by a particular Participant or Grant shall not in any way reduce or eliminate Mattel’s authority to require Termination, Rescission and/or Recapture with respect to any other act or Participant or Grant.
(g) Nothing in this Section 19 shall be construed to impose obligations on any Participant to refrain from engaging in lawful competition with the Company after the termination of employment. Furthermore, Section 19(c)(iv) shall not be applicable to Participants who are principally employed or reside in California.
(h) All administrative and discretionary authority given to Mattel under this Section 19 shall be exercised by the most senior human resources executive of Mattel or such other person or committee (including without limitation the Committee) as the Committee may designate from time to time.
(i) Notwithstanding any provision of this Section 19, if any provision of this Section 19 is determined to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum extent permitted by applicable law, and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to any limitations required under applicable law. Furthermore, if any provision of this Section 19 is illegal under any applicable law, such provision shall be null and void to the extent necessary to comply with applicable law.
(j) Notwithstanding the foregoing, this Section 19 shall not be applicable: (i) to any Participant who at no time is an employee of the Company; (ii) to any Grant made to a Participant for services as an Outside Director or in any capacity other than an employee of the Company; or (iii) to any Participant from and after his or her Severance if such Severance occurs within the 24-month period after a Change in Control.
19A. Compensation Recovery Policy. Notwithstanding any provision in the Plan to the contrary, Grants under this Plan shall be subject to the terms and conditions of the Mattel, Inc. Compensation Recovery Policy, as may be amended from time to time, to the extent applicable.
20. Code Section 409A.
(a) It is the intention of Mattel that no Grant shall be “nonqualified deferred compensation” subject to Code Section 409A, unless and to the extent that the Committee specifically determines otherwise as provided below, and the Plan and the terms and conditions of all Grants shall be interpreted, construed and administered in accordance with this intent, so as to avoid the imposition of taxes and penalties on Participants pursuant to Section 409A. The Company shall have no liability to any Participant or otherwise if the Plan or any grant, vesting, exercise or payment of any Grant hereunder are subject to the additional tax and penalties under Code Section 409A. Notwithstanding any other provision of the Plan to the contrary, with respect to any Grant that is subject to Code Section 409A, if a Participant is a “specified employee” (as such term is defined in Code Section 409A and as determined by the Company) as of the Participant’s Severance, any payments (whether in cash, Common Stock or other property) to be made with respect to the Grant upon the Participant’s Severance will be accumulated and paid (without interest) on the earlier of (i) first business day of the seventh month following the Participant’s “separation from service” (as such term is defined and used in Code Section 409A) or (ii) the date of the Participant’s death.
(b) The terms and conditions governing any Grants that the Committee determines will be subject to Code Section 409A, including any rules for elective or mandatory deferral of the delivery of cash or shares of Common Stock pursuant thereto and any rules regarding treatment of such Grants in the event of a Change in Control, shall be set forth in writing, and shall comply in all respects with Code Section 409A. Additionally, to the extent any Grant is subject to Code Section 409A, notwithstanding any provision of the Plan to the contrary, the Plan does not permit the acceleration of the time or schedule of any distribution related to such Grant, except as permitted by Code Section 409A.
(c) Notwithstanding any other provision of the Plan to the contrary, if a Change in Control occurs that is not a “change in control event” within the meaning of Code Section 409A, and payment or distribution of a Grant that is “nonqualified deferred compensation” subject to Code Section 409A would otherwise be made or commence on the date of such Change in Control (pursuant to the Plan, the Grant or otherwise), (i) the vesting of such Grant shall accelerate in accordance with the Plan and the Grant, (ii) such payment or distribution shall not be made or commence prior to the earliest date on which Code Section 409A permits such payment or distribution to be made or commence without additional taxes or penalties under Code Section 409A, and (iii) in the event any such payment or distribution is deferred in accordance with the immediately preceding clause (ii), such payment or distribution that would have been made prior to the deferred payment or commencement date, but for Code Section 409A, shall be paid or distributed on such earliest payment or commencement date, together, if determined by the Committee, with interest at the rate established by the Committee.
(d) Any deferral election provided to the Company or the Participant under or with respect to any Grant that constitutes, or provides for, a deferral of compensation subject to Code Section 409A (a “Section 409A Grant”) shall satisfy the requirements of Code Section 409A(a)(4)(B) and the Treasury Regulations promulgated thereunder, to the extent applicable, and any such deferral election with respect to compensation for services performed during a taxable year shall be made not later than the close of the preceding taxable year, or by such later date as may be permitted by Code Section 409A and the Treasury Regulations promulgated thereunder.
(e) In the event that a Section 409A Grant permits, under a subsequent election by the Company or the Participant, a delay in a distribution or payment of any shares of Common Stock or other property or amounts under such Section 409A Grant, or a change in the form of distribution or payment, such subsequent election shall satisfy the requirements of Code Section 409A(a)(4)(C) and the Treasury Regulations promulgated thereunder.
21. Notice of Disqualifying Disposition. A Participant must notify Mattel if the Participant makes a disqualifying disposition of Common Stock acquired pursuant to the exercise of an Incentive Stock Option granted under the Plan.
22. Amendments; Termination; Replacements; No Repricing.
(a) The Board may at any time amend or terminate the Plan. However, no amendment or termination of the Plan may affect an outstanding Grant, except as permitted by Section 22(b) or (c). Furthermore, stockholder approval of an amendment of the Plan shall be required to the extent that (i) the amendment would affect Section 22(d) of the Plan or (ii) the listing standards of the Nasdaq Stock Market require such approval.
(b) The Committee may adopt special rules, procedures, definitions and other provisions under the Plan, special amendments to Plan provisions, and sub-plans for purposes of complying with applicable local laws and regulations, which may be applicable to specified Grants and/or to specified Participants, as it deems appropriate in its discretion to comply with applicable local laws and regulations, and to otherwise take into account the effects of, and deal appropriately with, local laws, regulations and practices; provided, that none of the foregoing shall alter the rules regarding the shares available under the Plan set forth in Section 5, eligibility for Grants as set forth in Section 6, and the requirement that the per-share exercise price of Options and Stock Appreciation Rights generally be not less than 100% of the Fair Market Value on the date of grant set forth in Sections 7(b) and 8(c).
(c) The Board or the Committee may unilaterally modify the terms of any outstanding Grant; provided, that no such modification may be made that would impair the rights of the Participant holding the Grant without his or her consent, except to the extent the modification is made to cause the Plan or Grant to comply with applicable laws or regulations, stock exchange rules or accounting rules.
(d) Notwithstanding any other provision of this Plan, except as permitted by Section 17 (or an exemption therefrom) and with the approval of Mattel’s stockholders, (i) in no event may any Option or Stock Appreciation Right be modified by reducing its exercise price, (ii) in no event may any Option or Stock Appreciation Right be cancelled and replaced with a new Option or Stock Appreciation Right with a lower exercise price, and (iii) in no event may any Option or Stock Appreciation Right be cancelled in exchange for cash or another Grant when the Option or Stock Appreciate Right per share exercise price exceeds the Fair Market Value of the underlying share of Common Stock.
24. Tax Withholding. Participants shall be required to pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes (or similar amounts due to any governmental or regulatory body) of any kind (if any) that are required by applicable laws or regulations to be withheld with respect to Grants. Unless otherwise determined by the Company, or as may be otherwise required by applicable laws or regulations, any such withholding obligations may be settled with Common Stock, including Common Stock that is part of the Grant that gives rise to the withholding requirement; provided, however, that not more than the legally required minimum withholding, unless higher withholding is permissible without adverse accounting consequences, may be settled with Common Stock. The obligations of the Company under the Plan shall be conditional on such payment or arrangements (to the extent applicable), and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to such Participant. The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Common Stock.
25. No Additional Rights.
(a) Neither the adoption of the Plan nor the granting of any Option or Restricted Stock shall:
(i) affect or restrict in any way the power of the Company to undertake any corporate action otherwise permitted under applicable law; or
(ii) confer upon any Participant the right to continue performing services for the Company, nor shall it interfere in any way with the right of the Company to terminate the services of any Participant at any time, with or without cause, or to change all other terms and conditions of employment or engagement.
(b) No Participant shall have any rights as a stockholder with respect to any shares covered by a Grant until the date a certificate has been delivered to the Participant or book entries evidencing such shares have been recorded by the Company or its transfer agent following the exercise of an Option or the receipt of Restricted Stock.
26. Securities Law Restrictions.
(a) No securities shall be issued under the Plan unless the Committee shall be satisfied that the issuance will be in compliance with applicable federal, state, local and foreign securities laws.
(b) The Committee may require certain investment (or other) representations and undertakings in connection with the issuance of securities in connection with the Plan in order to comply with applicable law.
(c) Certificates or book entries evidencing shares of Common Stock delivered under the Plan may be subject to such restrictions as the Committee may deem advisable. The Committee may cause a legend to be placed on the certificates or book entries to refer to those restrictions.
(d) All transactions involving Grants and all transactions pursuant to the Plan are subject to Mattel’s Insider Trading Policy or any similar or successor policy.
27. Indemnification. To the maximum extent permitted by law, Mattel shall indemnify each member of the Committee and of the Board, as well as any other employee of the Company with duties under the Plan, against expenses (including any amount paid in settlement) reasonably incurred by the individual in connection with any claims against the individual by reason of the performance of the individual’s duties under the Plan, unless the losses are due to the individual’s gross negligence or lack of good faith. The Company will have the right to select counsel and to control the prosecution or defense of the suit. The Company will not be required to indemnify any person for any amount incurred through any settlement unless Mattel consents in writing to the settlement.
28. Foreign Holders. Notwithstanding any provision of the Plan or applicable Program to the contrary, in order to comply with the laws in countries other than the United States in which the Company and its Subsidiaries operate or have employees, Outside Directors or Consultants, or in order to comply with the requirements of any foreign securities exchange or other law, the Committee, in its sole discretion, shall have the power and authority to: (a) determine which Subsidiaries shall be covered by the Plan; (b) determine which employees, Outside Directors or Consultants outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Grant to such individuals outside the United States to comply with law (including, without limitation, applicable foreign laws or listing requirements of any foreign securities exchange); (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable; provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 5 or the individual limits contained in Section 5(e); and (e) take any action, before or after a Grant is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any foreign securities exchange.
29. Governing Law. The Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware.
To signify its adoption of the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan, Mattel has caused its execution.
| MATTEL, INC., a Delaware corporation | ||||||||||||||
| By: | /s/ Amy Thompson | |||||||||||||
| Name: | Amy Thompson | |||||||||||||
| Title: | Executive Vice President and Chief People Officer | |||||||||||||
Dated: March 22, 2023
EXHIBIT 31.0
CERTIFICATION
I, Ynon Kreiz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mattel, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 2, 2023 | By: | /s/ Ynon Kreiz | |||||||||||||||||
| Ynon Kreiz Chairman and Chief Executive Officer (Principal Executive Officer) | ||||||||||||||||||||
EXHIBIT 31.1
CERTIFICATION
I, Anthony DiSilvestro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mattel, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | May 2, 2023 | By: | /s/ Anthony DiSilvestro | |||||||||||||||||
| Anthony DiSilvestro Chief Financial Officer (Principal Financial Officer) | ||||||||||||||||||||
EXHIBIT 32.0
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Mattel, Inc. a Delaware corporation (the “Company”), on Form 10-Q for the quarter ended March 31, 2023 as filed with the Securities and Exchange Commission (the “Report”), Ynon Kreiz, Chief Executive Officer, and Anthony DiSilvestro, Chief Financial Officer, of the Company, do each hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) that, to his knowledge:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | May 2, 2023 | By: | /s/ Ynon Kreiz | |||||||||||||||||
| Ynon Kreiz | ||||||||||||||||||||
| Chairman and Chief Executive Officer | ||||||||||||||||||||
| /s/ Anthony DiSilvestro | ||||||||||||||||||||
| Anthony DiSilvestro | ||||||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||