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			~~September 30, 2020~~March 31, 2021


☐			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)

___________________________________________________________


Delaware						95-1567322
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


333 Continental Blvd.		90245-5012
El Segundo,	CA
(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

Common stock, $1.00 per share

MAT

The Nasdaq Global Select Market

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.

Large accelerated filer

☒

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 ~~October 16, 2020: 348,040,304~~April 19, 2021: 348,775,829 shares

MATTEL, INC. AND SUBSIDIARIES

(Cautionary Statement Under the Private Securities Litigation Reform Act of 1995)

Mattel is including this Cautionary Statement to caution investors and qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the "Act") for forward-looking statements.This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Act.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," "confident ~~that"~~that," and "believes," 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 our control, could cause actual future results to differ materially from those projected in the forward-looking statements, and are currently, orand in the future ~~could~~may be, amplified by the COVID-19 pandemic. Specific factors that might cause such a difference include, but are not limited to: (i) potential impacts of and uncertainty regarding the COVID-19 pandemic (and actions taken in response to it by governments, businesses, and individuals) on our business operations, financial results and financial position and on the global economy, including its impact on our sales; (ii) Mattel’s ability to design, develop, produce, manufacture, source, ship, and ~~ship~~distribute products on a timely and cost-effective ~~basis, as well as~~basis; (iii) sufficient interest in and ~~purchase of those~~demand for the products and entertainment we offer by retail customers and consumers ~~in quantities and at prices that will be sufficient~~ to profitably recover Mattel’s costs; ~~(iii)~~(iv) 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)~~(v) 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)~~(vi) potential difficulties or delays Mattel may experience in implementing cost savings and efficiency enhancing initiatives; ~~(vi)~~(vii) 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)~~(viii) currency fluctuations, including movements in foreign exchange rates, which can lower Mattel’s net revenues and earnings, and significantly impact Mattel’s costs; ~~(viii)~~(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; ~~(ix) the future willingness of licensors of entertainment properties for which Mattel currently has licenses or would seek to have licenses in the future to license those products to Mattel;~~ (x) the inventory policies of Mattel’s retail customers, ~~including retailers’ potential decisions to lower their inventories, even if it results in lost sales,~~ 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, ~~of popular items,~~ overproduction, ~~of less popular items~~ and ~~failure to achieve compressed~~ shipping ~~schedules;~~delays; (xi) legal, reputational, and financial risks related to security breaches or cyberattacks; (xii) ~~the increased costs of developing more sophisticated digital and smart technology products, and the corresponding supply chain and design challenges associated with such products; (xiii)~~ work disruptions, which may impact Mattel’s ability to manufacture or deliver product in a timely and cost-effective manner; (xiv) the bankruptcy and liquidation of Mattel’s significant retailers, or the general lack of success of one of Mattel’s significant retailers which could negatively impact Mattel’s revenues or bad debt exposure; (xv)(xiii) the impact of competition on revenues, margins, and other aspects of Mattel’s business, including the ability to offer products which 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; ~~(xvi)~~(xiv) the risk of product recalls or product liability suits and costs associated with product safety regulations; ~~(xvii)~~(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; ~~(xviii)~~(xvi) failure to realize the planned benefits from any investments or acquisitions made by Mattel; ~~(xix)~~(xvii) the impact of other market conditions or third party actions or approvals, ~~and competition~~including that result in any significant failure, inadequacy, or interruption from vendors or outsourcers, which could reduce demand for Mattel’s products, or delay or increase the cost of implementation of Mattel’s programs, or alter Mattel’s actions and reduce actual results; ~~(xx)~~(xviii) changes in financing markets or the inability of Mattel to obtain financing on attractive terms; ~~(xxi)~~(xix) the impact of litigation, arbitration, or regulatory decisions or settlement actions; ~~(xxii)~~(xx) uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; and ~~(xxiii)~~(xxi) other risks and uncertainties detailed in Part 1,I, Item 1A "Risk Factors" in Mattel's ~~2019~~2020 Annual Report on Form 10-K ~~as amended~~ (the ~~"2019~~"2020 Annual Report on Form 10-K") ~~and in Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q.~~. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so, except as required by law.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MATTEL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(Unaudited; in thousands, except share data)							(Unaudited; in thousands, except share data)
ASSETS	ASSETS							ASSETS
Current Assets	Current Assets							Current Assets
Cash and equivalents	Cash and equivalents	$	452,167	$	218,298	$	630,028	Cash and equivalents	$	615,238	$	499,407	$	762,181
Accounts receivable, net of allowances for credit losses of $18.5 million, $22.4 million, and $18.5 million, respectively		1,326,128		1,291,255		936,359
Accounts receivable, net of allowances for credit losses of $13.1 million, $20.9 million and $15.9 million, respectively								Accounts receivable, net of allowances for credit losses of $13.1 million, $20.9 million and $15.9 million, respectively	680,642		528,522		1,033,966
Inventories	Inventories	663,639		701,567		495,504		Inventories	609,835		560,645		514,673
Prepaid expenses and other current assets	Prepaid expenses and other current assets	157,929		225,877		186,083		Prepaid expenses and other current assets	187,186		218,516		172,070
Total current assets	Total current assets	2,599,863		2,436,997		2,247,974		Total current assets	2,092,901		1,807,090		2,482,890
Noncurrent Assets	Noncurrent Assets							Noncurrent Assets
Property, plant, and equipment, net	Property, plant, and equipment, net	497,437		572,269		550,139		Property, plant, and equipment, net	451,001		519,777		473,794
Right-of-use assets, net	Right-of-use assets, net	291,097		306,223		303,187		Right-of-use assets, net	294,819		298,288		291,601
Goodwill	Goodwill	1,387,260		1,382,588		1,390,714		Goodwill	1,392,289		1,382,852		1,393,834
Other noncurrent assets	Other noncurrent assets	828,438		829,504		833,212		Other noncurrent assets	871,306		796,345		878,970
Total Assets	Total Assets	$	5,604,095	$	5,527,581	$	5,325,226	Total Assets	$	5,102,316	$	4,804,352	$	5,521,089
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY							LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities	Current Liabilities							Current Liabilities
Short-term borrowings	Short-term borrowings	$	400,000	$	230,000	$	0	Short-term borrowings	$	878	$	150,000	$	969
Accounts payable	Accounts payable	497,379		512,491		459,357		Accounts payable	361,902		306,440		495,363
Accrued liabilities	Accrued liabilities	739,790		722,164		769,513		Accrued liabilities	689,686		657,254		831,922
Income taxes payable	Income taxes payable	21,252		48,795		48,037		Income taxes payable	30,106		12,290		27,125
Total current liabilities	Total current liabilities	1,658,421		1,513,450		1,276,907		Total current liabilities	1,082,572		1,125,984		1,355,379
Noncurrent Liabilities	Noncurrent Liabilities							Noncurrent Liabilities
Long-term debt	Long-term debt	2,852,751		2,856,773		2,846,751		Long-term debt	2,837,732		2,848,924		2,854,664
Noncurrent lease liabilities	Noncurrent lease liabilities	251,957		273,906		270,853		Noncurrent lease liabilities	255,670		262,631		249,353
Other noncurrent liabilities	Other noncurrent liabilities	436,459		419,696		439,001		Other noncurrent liabilities	452,411		408,930		465,350
Total noncurrent liabilities	Total noncurrent liabilities	3,541,167		3,550,375		3,556,605		Total noncurrent liabilities	3,545,813		3,520,485		3,569,367
Stockholders' Equity
Stockholders’ Equity								Stockholders’ Equity
Common stock $1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued	Common stock $1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued	441,369		441,369		441,369		Common stock $1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued	441,369		441,369		441,369
Additional paid-in capital	Additional paid-in capital	1,823,742		1,811,214		1,825,569		Additional paid-in capital	1,836,958		1,836,067		1,842,680
Treasury stock at cost: 93.3 million shares, 94.7 million shares, and 94.6 million shares, respectively		(2,283,992)		(2,321,012)		(2,318,921)
Treasury stock at cost: 92.6 million shares, 94.5 million shares and 93.2 million shares, respectively								Treasury stock at cost: 92.6 million shares, 94.5 million shares and 93.2 million shares, respectively	(2,267,961)		(2,316,110)		(2,282,939)
Retained earnings	Retained earnings	1,409,262		1,413,006		1,413,181		Retained earnings	1,424,591		1,202,440		1,539,809
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(985,874)		(880,821)		(869,484)		Accumulated other comprehensive loss	(961,026)		(1,005,883)		(944,576)
Total stockholders' equity		404,507		463,756		491,714
Total Liabilities and Stockholders' Equity		$	5,604,095	$	5,527,581	$	5,325,226
Total stockholders’ equity								Total stockholders’ equity	473,931		157,883		596,343
Total Liabilities and Stockholders’ Equity								Total Liabilities and Stockholders’ Equity	$	5,102,316	$	4,804,352	$	5,521,089

The accompanying notes are an integral part of these consolidated financial statements.

MATTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020
		(Unaudited; in thousands, except per share amounts)									(Unaudited; in thousands, except per share amounts)
Net Sales	Net Sales	$	1,631,691	$	1,481,557	$	2,957,897	$	3,030,866	Net Sales	$	874,192	$	594,069
Cost of sales	Cost of sales	799,307		795,130		1,549,482		1,763,265		Cost of sales	465,188		338,886
Gross Profit	Gross Profit	832,384		686,427		1,408,415		1,267,601		Gross Profit	409,004		255,183
Advertising and promotion expenses	Advertising and promotion expenses	102,527		170,379		238,981		324,333		Advertising and promotion expenses	74,096		76,282
Other selling and administrative expenses	Other selling and administrative expenses	345,700		365,961		981,229		971,608		Other selling and administrative expenses	303,870		328,711
Operating Income (Loss)	Operating Income (Loss)	384,157		150,087		188,205		(28,340)		Operating Income (Loss)	31,038		(149,810)
Interest expense	Interest expense	50,415		47,689		149,010		140,881		Interest expense	130,482		48,980
Interest (income)	Interest (income)	(455)		(821)		(3,564)		(4,625)		Interest (income)	(820)		(2,084)
Other non-operating (income) expense, net	Other non-operating (income) expense, net	(3,877)		1,264		(133)		2,874		Other non-operating (income) expense, net	(1,086)		3,023
Income (Loss) Before Income Taxes		338,074		101,955		42,892		(167,470)
Loss Before Income Taxes										Loss Before Income Taxes	(97,538)		(199,729)
Provision for income taxes	Provision for income taxes	22,080		31,359		46,811		46,217		Provision for income taxes	20,305		11,892
Net Income (Loss)		$	315,994	$	70,596	$	(3,919)	$	(213,687)
Net Income (Loss) Per Common Share - Basic		$	0.91	$	0.20	$	(0.01)	$	(0.62)
Income from equity method investments										Income from equity method investments	2,625		880
Net Loss										Net Loss	$	(115,218)	$	(210,741)
Net Loss Per Common Share - Basic										Net Loss Per Common Share - Basic	$	(0.33)	$	(0.61)
Weighted-average number of common shares	Weighted-average number of common shares	347,628		346,698		347,206		346,210		Weighted-average number of common shares	349,041		346,867
Net Income (Loss) Per Common Share - Diluted		$	0.91	$	0.20	$	(0.01)	$	(0.62)
Net Loss Per Common Share - Diluted										Net Loss Per Common Share - Diluted	$	(0.33)	$	(0.61)
Weighted-average number of common and potential common shares	Weighted-average number of common and potential common shares	348,714		348,487		347,206		346,210		Weighted-average number of common and potential common shares	349,041		346,867

The accompanying notes are an integral part of these consolidated financial statements.

MATTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(Unaudited; in thousands)
Net Income (Loss) $ 315,994 $ 70,596 $ (3,919) $ (213,687)
Other Comprehensive Loss, Net of Tax
Currency translation adjustments 13,032 (46,722) (105,759) (33,759)
Employee benefit plan adjustments 1,291 883 4,869 1,730
Net unrealized gains (losses) on available-for-sale security 178 (1,922) 293 (1,989)
Net unrealized (losses) gains on derivative instruments:
Unrealized holding (losses) gains (15,709) 12,996 (1,815) 22,068
Amounts reclassified from accumulated other comprehensive loss (7,069) (6,394) (13,978) (9,645)
(22,778) 6,602 (15,793) 12,423
Other Comprehensive Loss, Net of Tax (8,277) (41,159) (116,390) (21,595)
Comprehensive Income (Loss) $ 307,717 $ 29,437 $ (120,309) $ (235,282)


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(Unaudited; in thousands)
Net Loss	$	(115,218)	$	(210,741)
Other Comprehensive Loss, Net of Tax
Currency translation adjustments	(28,133)		(145,634)
Employee benefit plan adjustments	2,348		3,060
Net unrealized gains on available-for-sale security	1,964		195
Net unrealized gains on derivative instruments:
Unrealized holding gains	4,057		9,190
Reclassification adjustments included in net loss	3,314		(3,210)
	7,371		5,980
Other Comprehensive Loss, Net of Tax	(16,450)		(136,399)
Comprehensive Loss	$	(131,668)	$	(347,140)

The accompanying notes are an integral part of these consolidated financial statements.

MATTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


		For the Nine Months Ended					For the Three Months Ended
		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020
		(Unaudited; in thousands)					(Unaudited; in thousands)
Cash Flows From Operating Activities
Net loss		$	(3,919)	$	(213,687)
Cash Flows From Operating Activities:						Cash Flows From Operating Activities:
Net Loss						Net Loss	$	(115,218)	$	(210,741)
Adjustments to reconcile net loss to net cash flows used for operating activities:	Adjustments to reconcile net loss to net cash flows used for operating activities:					Adjustments to reconcile net loss to net cash flows used for operating activities:
Depreciation	Depreciation	120,073		156,252		Depreciation	36,533		43,654
Amortization	Amortization	29,465		30,162		Amortization	9,514		9,965
Asset impairments		8,550		9,344

Share-based compensation	Share-based compensation	39,946		39,140		Share-based compensation	15,112		14,275
Bad debt expense	Bad debt expense	7,822		2,869		Bad debt expense	237		5,248
Inventory obsolescence	Inventory obsolescence	31,068		56,913		Inventory obsolescence	10,892		10,190

Deferred income taxes	Deferred income taxes	8,777		(13,424)		Deferred income taxes	1,851		5,210
Income from equity method investments						Income from equity method investments	(2,625)		(880)
Loss on extinguishment of long-term borrowings						Loss on extinguishment of long-term borrowings	83,213		0
(Gain) loss on sale of assets/business, net						(Gain) loss on sale of assets/business, net	(19,735)		1,580
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(429,584)		(337,530)		Accounts receivable	338,305		365,002
Inventories	Inventories	(211,149)		(229,524)		Inventories	(135,103)		(109,938)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	18,979		14,703		Prepaid expenses and other current assets	(12,943)		(16,343)
Accounts payable, accrued liabilities, and income taxes payable	Accounts payable, accrued liabilities, and income taxes payable	(40,082)		(29,026)		Accounts payable, accrued liabilities, and income taxes payable	(262,635)		(316,291)
Other, net	Other, net	(13,923)		147		Other, net	11,369		24,580
Net cash flows used for operating activities	Net cash flows used for operating activities	(433,977)		(513,661)		Net cash flows used for operating activities	(41,233)		(174,489)
Cash Flows From Investing Activities
Cash Flows From Investing Activities:						Cash Flows From Investing Activities:
Purchases of tools, dies, and molds	Purchases of tools, dies, and molds	(41,447)		(36,715)		Purchases of tools, dies, and molds	(18,171)		(11,363)
Purchases of other property, plant, and equipment	Purchases of other property, plant, and equipment	(49,016)		(38,962)		Purchases of other property, plant, and equipment	(12,119)		(23,943)

Payments for foreign currency forward exchange contracts, net		(26,982)		(3,394)

Payments of foreign currency forward exchange contracts, net						Payments of foreign currency forward exchange contracts, net	(3,245)		(46,565)
Proceeds from sale of assets/business						Proceeds from sale of assets/business	39,208		738
Other, net	Other, net	2,283		702		Other, net	653		(24)
Net cash flows used for investing activities		(115,162)		(78,369)
Cash Flows From Financing Activities

Proceeds from short-term borrowings, net		400,000		225,824

Net cash flows provided by (used for) investing activities						Net cash flows provided by (used for) investing activities	6,326		(81,157)
Cash Flows From Financing Activities:						Cash Flows From Financing Activities:
(Payments of) proceeds from short-term borrowings, net						(Payments of) proceeds from short-term borrowings, net	(91)		150,000
Payments of long-term borrowings						Payments of long-term borrowings	(1,287,022)		0
Proceeds from long-term borrowings, net						Proceeds from long-term borrowings, net	1,188,000		0

Other, net	Other, net	(6,580)		(7,523)		Other, net	(6,592)		(678)
Net cash flows provided by financing activities		393,420		218,301
Effect of Currency Exchange Rate Changes on Cash		(22,142)		(2,454)
Net cash flows (used for) provided by financing activities						Net cash flows (used for) provided by financing activities	(105,705)		149,322
Effect of Currency Exchange Rate Changes on Cash and Equivalents						Effect of Currency Exchange Rate Changes on Cash and Equivalents	(6,331)		(24,297)
Decrease in Cash and Equivalents	Decrease in Cash and Equivalents	(177,861)		(376,183)		Decrease in Cash and Equivalents	(146,943)		(130,621)
Cash and Equivalents at Beginning of Period	Cash and Equivalents at Beginning of Period	630,028		594,481		Cash and Equivalents at Beginning of Period	762,181		630,028
Cash and Equivalents at End of Period	Cash and Equivalents at End of Period	$	452,167	$	218,298	Cash and Equivalents at End of Period	$	615,238	$	499,407

The accompanying notes are an integral part of these consolidated financial statements.

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, 2020														Balance, December 31, 2020	$	441,369	$	1,842,680	$	(2,282,939)	$	1,539,809	$	(944,576)	$	596,343

Net loss														Net loss	—		—		—		(115,218)		—		(115,218)
Other comprehensive loss, net of tax														Other comprehensive loss, net of tax	—		—		—		—		(16,450)		(16,450)
Issuance of treasury stock for stock option exercises														Issuance of treasury stock for stock option exercises	—		(803)		1,913		—		—		1,110
Issuance of treasury stock for restricted stock units vesting														Issuance of treasury stock for restricted stock units vesting	—		(20,031)		13,065		—		—		(6,966)

Share-based compensation														Share-based compensation	—		15,112		—		—		—		15,112

Balance, March 31, 2021														Balance, March 31, 2021	$	441,369	$	1,836,958	$	(2,267,961)	$	1,424,591	$	(961,026)	$	473,931

		Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity			Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
		(Unaudited; in thousands)													(Unaudited; in thousands)
Balance, December 31, 2019	Balance, December 31, 2019	$	441,369	$	1,825,569	$	(2,318,921)	$	1,413,181	$	(869,484)	$	491,714	Balance, December 31, 2019	$	441,369	$	1,825,569	$	(2,318,921)	$	1,413,181	$	(869,484)	$	491,714

Net loss	Net loss	—		—		—		(210,741)		—		(210,741)		Net loss	—		—		—		(210,741)		—		(210,741)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—		—		—		(136,399)		(136,399)		Other comprehensive loss, net of tax	—		—		—		—		(136,399)		(136,399)

Issuance of treasury stock for restricted stock units vesting	Issuance of treasury stock for restricted stock units vesting	—		(3,777)		2,811		—		—		(966)		Issuance of treasury stock for restricted stock units vesting	—		(3,777)		2,811		—		—		(966)

Share-based compensation	Share-based compensation	—		14,275		—		—		—		14,275		Share-based compensation	—		14,275		—		—		—		14,275

Balance, March 31, 2020	Balance, March 31, 2020	$	441,369	$	1,836,067	$	(2,316,110)	$	1,202,440	$	(1,005,883)	$	157,883	Balance, March 31, 2020	$	441,369	$	1,836,067	$	(2,316,110)	$	1,202,440	$	(1,005,883)	$	157,883

Net loss		—		—		—		(109,172)		—		(109,172)
Other comprehensive income, net of tax		—		—		—		—		28,286		28,286

Issuance of treasury stock for restricted stock units vesting		—		(944)		833		—		—		(111)
Deferred compensation		—		(186)		310		—		—		124
Share-based compensation		—		9,138		—		—		—		9,138
Balance, June 30, 2020		$	441,369	$	1,844,075	$	(2,314,967)	$	1,093,268	$	(977,597)	$	86,148
Net income		—		—		—		315,994		—		315,994
Other comprehensive loss, net of tax		—		—		—		—		(8,277)		(8,277)
Issuance of treasury stock for restricted stock units vesting		—		(36,865)		30,975		—		—		(5,890)

Share-based compensation		—		16,532		—		—		—		16,532

Balance, September 30, 2020		$	441,369	$	1,823,742	$	(2,283,992)	$	1,409,262	$	(985,874)	$	404,507

		Common Stock		Additional Paid-In Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
		(Unaudited; in thousands)
Balance, December 31, 2018		$	441,369	$	1,812,682	$	(2,354,617)	$	1,626,693	$	(859,226)	$	666,901
Net loss		—		—		—		(176,296)		—		(176,296)
Other comprehensive income, net of tax		—		—		—		—		21,292		21,292
Issuance of treasury stock for restricted stock units vesting		—		(1,829)		1,442		—		—		(387)
Share-based compensation		—		11,865		—		—		—		11,865
Balance, March 31, 2019		$	441,369	$	1,822,718	$	(2,353,175)	$	1,450,397	$	(837,934)	$	523,375

Net loss		—		—		—		(107,987)		—		(107,987)
Other comprehensive loss, net of tax		—		—		—		—		(1,728)		(1,728)

Issuance of treasury stock for restricted stock units vesting		—		(3,060)		3,025		—		—		(35)
Deferred compensation		—		(151)		276		—		—		125
Share-based compensation		—		12,445		—		—		—		12,445

Balance, June 30, 2019		$	441,369	$	1,831,952	$	(2,349,874)	$	1,342,410	$	(839,662)	$	426,195

Net income		—		—		—		70,596		—		70,596
Other comprehensive loss, net of tax		—		—		—		—		(41,159)		(41,159)

Issuance of treasury stock for restricted stock units vesting		—		(35,569)		28,862		—		—		(6,707)

Share-based compensation		—		14,831		—		—		—		14,831

Balance, September 30, 2019		$	441,369	$	1,811,214	$	(2,321,012)	$	1,413,006	$	(880,821)	$	463,756

The accompanying notes are an integral part of these consolidated financial statements.

MATTEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments, consisting of only those of a normal recurring nature, considered necessary for a fair statement of the financial position and interim results of Mattel, Inc. and its subsidiaries ("Mattel") as of and for the periods presented have been included.

The December 31, ~~2019~~2020 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 ~~2019~~2020 Annual Report on Form 10-K.

Certain prior period amounts have been reclassified to conform to the current period presentation.

2. Accounts Receivable

Mattel estimates current expected credit losses based on collection history and management’s assessment of the current economic trends, business environment, customers’ financial condition, accounts receivable aging, and customer disputes that may impact the level of future credit losses. Accounts receivable are net of allowances for credit losses of ~~$18.5~~$13.1 million, ~~$22.4~~$20.9 million, and ~~$18.5~~$15.9 million as of ~~September 30,~~March 31, 2021, March 31, 2020, ~~September 30, 2019,~~ and December 31, ~~2019,~~2020, respectively.

3. Inventories

Inventories include the following:


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
Raw materials and work in process	Raw materials and work in process	$	113,248	$	107,562	$	103,123	Raw materials and work in process	$	119,417	$	107,880	$	110,010
Finished goods	Finished goods	550,391		594,005		392,381		Finished goods	490,418		452,765		404,663
		$	663,639	$	701,567	$	495,504		$	609,835	$	560,645	$	514,673

4. Property, Plant, and Equipment

Property, plant, and equipment, net includes the following:


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
Land	Land	$	24,906	$	25,086	$	25,112	Land	$	22,029	$	24,856	$	24,913
Buildings	Buildings	297,067		299,489		302,956		Buildings	312,114		297,910		335,407
Machinery and equipment	Machinery and equipment	750,118		866,002		812,509		Machinery and equipment	764,276		769,761		772,349
Software	Software	374,596		413,903		364,391		Software	345,477		367,143		344,268
Tools, dies, and molds	Tools, dies, and molds	608,301		801,064		747,706		Tools, dies, and molds	603,817		719,615		607,915
Leasehold improvements	Leasehold improvements	172,095		211,455		183,250		Leasehold improvements	119,828		179,872		131,578
		2,227,083		2,616,999		2,435,924			2,167,541		2,359,157		2,216,430
Less: accumulated depreciation	Less: accumulated depreciation	(1,729,646)		(2,044,730)		(1,885,785)		Less: accumulated depreciation	(1,716,540)		(1,839,380)		(1,742,636)
		$	497,437	$	572,269	$	550,139		$	451,001	$	519,777	$	473,794

During the three months ended ~~December~~March 31, ~~2019, in conjunction with~~2021, Mattel completed the ~~Capital Light program, as further discussed in "Note 19 to the Consolidated Financial Statements—Restructuring Charges," Mattel discontinued production at one~~sale of ~~its plants~~a manufacturing plant based in Mexico, ~~and has committed to a plan to dispose of the~~which included land and ~~building. These~~buildings, resulting in a pre-tax gain of $15.8 million. The assets ~~meet the~~sold were previously designated as held for sale, ~~criteria~~ and are actively being marketed for sale. The estimated fair value of the land and building, less costs to dispose, was determined to exceed its net book value of $8.4 million and $12.1 million as of September 30, 2020 and December 31, 2019, respectively, and are included within property, plant, and equipment, net in the consolidated balance ~~sheets.~~sheets as of December 31, 2020 and March 31, 2020.

5. 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.

~~In the third quarter of 2020, Mattel performed its annual impairment test and determined that goodwill was not impaired.~~ The change in the carrying amount of goodwill by operating segment for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America segment, thereby causing a foreign currency translation impact. During the three months ended March 31, 2021, Mattel sold its arts, crafts, and stationery business resulting in a reduction of goodwill of approximately $2 million.


		December 31, 2019		Currency Exchange Rate Impact			September 30, 2020			December 31, 2020		Dispositions		Currency Exchange Rate Impact		March 31, 2021
		(In thousands)				(In thousands)
North America	North America	$	732,430	$	(759)		$	731,671	North America	$	733,401	$	(1,290)	$	259	$	732,370
International	International	450,713		(2,695)			448,018		International	452,862		(1,056)		542		452,348
American Girl	American Girl	207,571		0			207,571		American Girl	207,571		0		0		207,571
		$	1,390,714	$	(3,454)		$	1,387,260		$	1,393,834	$	(2,346)	$	801	$	1,392,289

6. Other Noncurrent Assets

Other noncurrent assets include the following:


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
Identifiable intangible assets (net of accumulated amortization of $277.5 million, $238.1 million, and $248.0 million, respectively)		$	519,861	$	552,332	$	553,114
Identifiable intangible assets (net of accumulated amortization of $296.4 million, $258.0 million, and $286.9 million, respectively)								Identifiable intangible assets (net of accumulated amortization of $296.4 million, $258.0 million, and $286.9 million, respectively)	$	509,844	$	534,044	$	518,190
Deferred income taxes	Deferred income taxes	60,850		63,551		67,900		Deferred income taxes	71,157		62,674		72,682

Mattel's amortizable intangible assets primarily consist of trademarks. Mattel tests its amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Mattel's amortizable intangible assets were 0t impaired during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

7. Accrued Liabilities

Accrued liabilities include the following:


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
Incentive compensation	Incentive compensation	$	97,635	$	65,220	$	122,923	Incentive compensation	$	143,414	$	135,833	$	126,601
Advertising and promotion								Advertising and promotion	78,755		71,563		163,181
Current lease liabilities	Current lease liabilities	85,120		73,297		74,065		Current lease liabilities	73,155		78,247		79,540
Advertising and promotion		98,597		117,561		93,804
Royalties	Royalties	57,020		82,056		94,228		Royalties	24,191		22,701		54,442

8. Seasonal Financing

On December 20, 2017, Mattel entered into a syndicated facility agreement, which was subsequently amended in 2018, 2019, and ~~2019~~2021 (as amended, the "Credit Agreement"), as a borrower (in such capacity, the "Borrower") and guarantor thereunder, along with certain of the Borrower's domestic and foreign subsidiaries as additional borrowers and/or guarantors ~~thereunder, Bank~~thereunder.

On March 19, 2021, Mattel entered into the fourth amendment to the Credit Agreement, which amended certain terms, including, but not limited to, certain components of ~~America, N.A., as global administrative agent, collateral agent and Australian security trustee, and~~ the ~~other lenders and financial institutions from time to time party thereto, providing up to $1.60 billion in~~borrowing base, a reduction of the aggregate principal ~~amount~~commitments of the senior secured revolving credit facilities (the "senior secured revolving credit facilities"). from $1.60 billion to $1.40 billion, and an extension of the maturity date from November 18, 2022 to March 19, 2024.

The senior secured revolving credit facilities consist of (i) an asset based lending facility with aggregate commitments up to ~~$1.31~~$1.11 billion, subject to borrowing base capacity, secured by substantially all of the accounts receivable and inventory of the Borrower and certain of its subsidiaries who are borrowers and/or guarantors under the Credit Agreement, as well as (ii) a revolving credit facility with $294.0 million in aggregate commitments secured by certain fixed assets and intellectual property of the U.S. borrowers under the Credit Agreement, and certain equity interests in the borrower and guarantor subsidiaries under the Credit Agreement. ~~The senior secured revolving credit facilities will mature on November 18, 2022.~~

Borrowings under the senior secured revolving credit facilities (i) are limited by jurisdiction-specific borrowing base calculations based on the sum of specified percentages of eligible accounts receivable, eligible inventory and certain fixed assets and intellectual property, as applicable, minus the amount of any applicable reserves, and (ii) bear interest at a floating rate, which can be either, at the Borrower's option, (a) an adjusted LIBOR rate plus an applicable margin ranging from 1.25% to ~~2.75%~~1.75% per annum or (b) an alternate base rate plus an applicable margin ranging from 0.25% to ~~1.75%~~0.75% per annum, in each case, such applicable margins to be determined based on the Borrower's average borrowing availability remaining under the senior secured revolving credit facilities.

In addition to paying interest on the outstanding principal under the senior secured revolving credit facilities, the Borrower is required to pay (i) an unused line fee per annum of the average daily unused portion of the senior secured revolving credit facilities, (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.

Mattel had 0 borrowings under the senior secured revolving credit facilities ~~of $400 million and $230 million~~ as of ~~September 30,~~March 31, 2021, $150.0 million of borrowings as of March 31, 2020, and ~~September 30, 2019, respectively, and had~~ 0 borrowings under the senior secured revolving credit facilities as of December 31, ~~2019. During October 2020, Mattel repaid $323.7 million under the senior secured revolving credit facilities, resulting in a total outstanding balance of $76.3 million as of October 21,~~ 2020. Outstanding letters of credit under the senior secured revolving credit facilities totaled approximately $11 million, $13 million, ~~$65 million,~~ and ~~$55~~$11 million as of ~~September 30,~~March 31, 2021, March 31, 2020, ~~September 30, 2019,~~ and December 31, ~~2019,~~2020, respectively.

The Credit Agreement contains customary covenants, including, but not limited to, restrictions on the Borrower'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 transfer assets outside of the ordinary course, optionally prepay or modify terms of any junior indebtedness, enter into transactions with affiliates, or change their line of business.

The Credit Agreement requires the maintenance of a fixed charge coverage ratio of 1.00 to 1.00 at the end of each fiscal quarter when excess availability under the senior secured revolving credit facilities is less than the greater of (x) $100 million and (y) 10% of the aggregate amount available thereunder (the "Availability Threshold") and on the last day of each subsequent fiscal quarter ending thereafter until no event of default exists and excess availability is greater than the Availability Threshold for at least 30 consecutive days.

Since the execution of the Credit Agreement, the fixed charge coverage ratio covenant has not been in effect, as no event of default has occurred and Mattel's excess availability has been greater than $100 million and the Availability Threshold. As of ~~September 30, 2020,~~March 31, 2021, Mattel was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement is a material agreement, and failure to comply with the covenants may result in an event of default under the terms of the senior secured revolving credit facilities. If Mattel were to default under the terms of the senior secured revolving credit facilities, its ability to meet its seasonal financing requirements could be adversely affected.

9. Long-Term Debt

Long-term debt includes the following:


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
2010 Senior Notes due October 2020		$	0	$	250,000	$	0
2010 Senior Notes due October 2040	2010 Senior Notes due October 2040	250,000		250,000		250,000		2010 Senior Notes due October 2040	$	250,000	$	250,000	$	250,000
2011 Senior Notes due November 2041	2011 Senior Notes due November 2041	300,000		300,000		300,000		2011 Senior Notes due November 2041	300,000		300,000		300,000
2013 Senior Notes due March 2023	2013 Senior Notes due March 2023	250,000		250,000		250,000		2013 Senior Notes due March 2023	250,000		250,000		250,000

2016 Senior Notes due August 2021		0		350,000		0
2017/2018 Senior Notes due December 2025	2017/2018 Senior Notes due December 2025	1,500,000		1,500,000		1,500,000		2017/2018 Senior Notes due December 2025	275,000		1,500,000		1,500,000
2019 Senior Notes due December 2027	2019 Senior Notes due December 2027	600,000		0		600,000		2019 Senior Notes due December 2027	600,000		600,000		600,000
2021 Senior Notes due April 2026								2021 Senior Notes due April 2026	600,000		0		0
2021 Senior Notes due April 2029								2021 Senior Notes due April 2029	600,000		0		0
Debt issuance costs and debt discount	Debt issuance costs and debt discount	(47,249)		(43,227)		(53,249)		Debt issuance costs and debt discount	(37,268)		(51,076)		(45,336)
		$	2,852,751	$	2,856,773	$	2,846,751		$	2,837,732	$	2,848,924	$	2,854,664

On March 19, 2021, Mattel issued (i) $600 million aggregate principal amount of 3.375% Senior Notes due 2026 (the "2026 Notes") and (ii) $600 million aggregate principal amount of 3.750% Senior Notes due 2029 (the "2029 Notes" and, together with the 2026 Notes, the "Notes"). The 2026 Notes will mature on April 1, 2026 and the 2029 Notes will mature on April 1, 2029, unless earlier redeemed in accordance with their respective terms. The Notes are guaranteed by Mattel’s existing and, subject to certain exceptions, future wholly owned domestic restricted subsidiaries that guarantee Mattel’s senior secured revolving credit facilities or certain other indebtedness.

The net proceeds from the offering, together with cash on hand, were used to redeem $1,225 million in aggregate principal amount of Mattel’s outstanding 6.750% Senior Notes due December 2025 (the "2025 Notes") and pay related prepayment premiums and transaction fees and expenses. As a result of the partial redemption of the 2025 Notes, Mattel incurred a loss on extinguishment of $83.2 million, comprised of $62.0 million of prepayment premium costs and a $21.2 million write-off of the unamortized debt issuance costs, which was recorded within interest expense in the consolidated statements of operations. Following completion of the partial redemption of the 2025 Notes, $275 million aggregate principal amount of the 2025 Notes remains outstanding.

10. Other Noncurrent Liabilities

Other noncurrent liabilities include the following:


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
Benefit plan liabilities	Benefit plan liabilities	$	203,295	$	183,214	$	212,280	Benefit plan liabilities	$	221,345	$	205,694	$	225,957
Noncurrent income tax liabilities		129,773		146,297		125,515
Noncurrent income tax payable								Noncurrent income tax payable	72,252		70,902		71,342
Deferred income tax liability								Deferred income tax liability	60,929		54,896		60,892

11. Accumulated Other Comprehensive Income (Loss)

The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss) for each period:

For the Three Months Ended September 30, 2020
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 June 30, 2020 $ 18,026 $ (8,145) $ (166,279) $ (821,199) $ (977,597)
Other comprehensive (loss) income before reclassifications (15,709) 178 (432) 13,032 (2,931)
Amounts reclassified from accumulated other comprehensive income (loss) (7,069) 0 1,723 0 (5,346)
Net (decrease) increase in other comprehensive (loss) income (22,778) 178 1,291 13,032 (8,277)
Accumulated Other Comprehensive (Loss), Net of Tax, as of September 30, 2020 $ (4,752) $ (7,967) $ (164,988) $ (808,167) $ (985,874)


	For the Three Months Ended March 31, 2021
	Derivative Instruments		Available-for-Sale Security		Employee Benefit Plans		Currency Translation Adjustments		Total
	(In thousands)
Accumulated Other Comprehensive Loss, Net of Tax, as of December 31, 2020	$	(15,369)	$	(7,522)	$	(186,854)	$	(734,831)	$	(944,576)
Other comprehensive income (loss) before reclassifications	4,057		1,964		(67)		(28,133)		(22,179)
Amounts reclassified from accumulated other comprehensive loss	3,314		0		2,415		0		5,729
Net increase (decrease) in other comprehensive income (loss)	7,371		1,964		2,348		(28,133)		(16,450)
Accumulated Other Comprehensive Loss, Net of Tax, as of March 31, 2021	$	(7,998)	$	(5,558)	$	(184,506)	$	(762,964)	$	(961,026)

For the Nine Months Ended September 30, 2020
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, 2019 $ 11,041 $ (8,260) $ (169,857) $ (702,408) $ (869,484)
Other comprehensive (loss) income before reclassifications (1,815) 293 67 (105,759) (107,214)
Amounts reclassified from accumulated other comprehensive income (loss) (13,978) 0 4,802 0 (9,176)
Net (decrease) increase in other comprehensive (loss) income (15,793) 293 4,869 (105,759) (116,390)
Accumulated Other Comprehensive (Loss), Net of Tax, as of September 30, 2020 $ (4,752) $ (7,967) $ (164,988) $ (808,167) $ (985,874)


	For the Three Months Ended March 31, 2020
	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, 2019	$	11,041	$	(8,260)	$	(169,857)	$	(702,408)	$	(869,484)
Other comprehensive income (loss) before reclassifications	9,190		195		1,702		(145,634)		(134,547)
Amounts reclassified from accumulated other comprehensive loss	(3,210)		0		1,358		0		(1,852)
Net increase (decrease) in other comprehensive income (loss)	5,980		195		3,060		(145,634)		(136,399)
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2020	$	17,021	$	(8,065)	$	(166,797)	$	(848,042)	$	(1,005,883)

For the Three Months Ended September 30, 2019
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 June 30, 2019 $ 17,232 $ (6,614) $ (141,916) $ (708,364) $ (839,662)
Other comprehensive income (loss) before reclassifications 12,996 (1,922) (359) (46,722) (36,007)
Amounts reclassified from accumulated other comprehensive income (loss) (6,394) 0 1,242 0 (5,152)
Net increase (decrease) in other comprehensive income (loss) 6,602 (1,922) 883 (46,722) (41,159)
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of September 30, 2019 $ 23,834 $ (8,536) $ (141,033) $ (755,086) $ (880,821)

For the Nine Months Ended September 30, 2019
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, 2018 $ 11,411 $ (6,547) $ (142,763) $ (721,327) $ (859,226)
Other comprehensive income (loss) before reclassifications 22,068 (1,989) (2,183) (33,759) (15,863)
Amounts reclassified from accumulated other comprehensive income (loss) (9,645) 0 3,913 0 (5,732)
Net increase (decrease) in other comprehensive income (loss) 12,423 (1,989) 1,730 (33,759) (21,595)
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of September 30, 2019 $ 23,834 $ (8,536) $ (141,033) $ (755,086) $ (880,821)

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
September 30,
2020 September 30,
2019 Statements of Operations
Classification
(In thousands)
Derivative Instruments
Gain on foreign currency forward exchange contracts and other $ 7,031 $ 6,583 Cost of sales
Tax effect 38 (189) Provision for income taxes
$ 7,069 $ 6,394 Net income (loss)
Employee Benefit Plans
Amortization of prior service credit (a) $ 472 $ 494 Other non-operating (income) expense, net
Recognized actuarial loss (a) (2,336) (1,736) Other non-operating (income) expense, net
(1,864) (1,242)
Tax effect 141 0 Provision for income taxes
$ (1,723) $ (1,242) Net income (loss)


		For the Nine Months Ended						For the Three Months Ended
		September 30, 2020		September 30, 2019		Statements of Operations Classification		March 31, 2021		March 31, 2020		Statements of Operations Classification
		(In thousands)						(In thousands)
Derivative Instruments	Derivative Instruments						Derivative Instruments
Gain on foreign currency forward exchange contracts and other		$	13,845	$	10,185	Cost of sales
Tax effect		133		(540)		Provision for income taxes
(Loss) gain on foreign currency forward exchange and other contracts							(Loss) gain on foreign currency forward exchange and other contracts	$	(3,206)	$	3,193	Cost of sales
Tax effect of net (loss) gain							Tax effect of net (loss) gain	(108)		17		Provision for income taxes
		$	13,978	$	9,645	Net income (loss)		$	(3,314)	$	3,210	Net loss
Employee Benefit Plans	Employee Benefit Plans						Employee Benefit Plans
Amortization of prior service credit (a)	Amortization of prior service credit (a)	$	1,405	$	1,480	Other non-operating (income) expense, net	Amortization of prior service credit (a)	$	398	$	466	Other non-operating income/expense, net
Recognized actuarial loss (a)	Recognized actuarial loss (a)	(7,014)		(5,208)		Other non-operating (income) expense, net	Recognized actuarial loss (a)	(2,783)		(2,340)		Other non-operating income/expense, net
								(2,385)		(1,874)
Tax effect of net (loss) gain							Tax effect of net (loss) gain	(30)		516		Provision for income taxes
								$	(2,415)	$	(1,358)	Net loss
		(5,609)		(3,728)
Tax effect		807		(185)		Provision for income taxes
		$	(4,802)	$	(3,913)	Net income (loss)

(a)The amortization of prior service credit and recognized actuarial loss are included in the computation of net periodic benefit cost. Refer to "Note 1516 to the Consolidated Financial Statements—Employee Benefit Plans" of this Quarterly Report on Form 10-Q for additional information regarding Mattel's net periodic benefit cost.

Currency Translation Adjustments

Mattel's reporting currency is the U.S. dollar. The translation of its net investments in subsidiaries with non-U.S. dollar functional currencies subjects Mattel to the impact of foreign currency exchange rate fluctuations in its results of operations and financial position. 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 and expense 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. Currency translation adjustments resulted in a net loss of ~~$105.8~~$28.1 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to the weakening of the Brazilian real, Mexican peso, ~~Russian ruble,~~Euro, and ~~the British pound sterling~~Turkish lira against the U.S. dollar. Currency translation adjustments resulted in a net loss of ~~$33.8~~$145.6 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, primarily due to the weakening of the Mexican peso, Russian ruble, Brazilian real, and British pound sterling ~~Euro, and Brazilian real against the U.S. dollar, partially offset by the strengthening of the Russian ruble~~ against the U.S. dollar.

12. Foreign Currency Transaction Exposure

Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. Mattel's currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income (loss) in the consolidated statements of operations. Gains and losses on unhedged intercompany loans and advances are recorded as a component of other non-operating (income) expense, net in the consolidated statements of operations in the period in which the currency exchange rate changes. Inventory transactions denominated in the Euro, Mexican peso, Australian dollar, British pound sterling, Canadian dollar, Russian ruble, and Brazilian real were the primary transactions that caused foreign currency transaction exposure for Mattel during the three months ended March 31, 2021.

Currency transaction gains (losses) included in the consolidated statements of operations are as follows:


	For the Three Months Ended
	March 31, 2021		March 31, 2020		Statements of Operations Classification
	(In thousands)
Currency transaction (losses) gains	$	(13,791)	$	224	Operating income/loss
Currency transaction (losses)	(3,308)		(832)		Other non-operating income/expense, net
Currency transaction (losses), net	$	(17,099)	$	(608)

13. Derivative Instruments

Mattel seeks to mitigate its exposure to foreign currency transaction risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts. Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. These derivative instruments have been designated as effective cash flow hedges, whereby the unsettled hedges are reported in Mattel's consolidated balance sheets at fair value, with changes in the fair value of the hedges reflected in other comprehensive income (loss) ("OCI"). Realized gains and losses for these contracts are recorded in the consolidated statements of operations in the period in which the inventory is sold to customers. Mattel ~~also~~ uses foreign currency forward exchange contracts to hedge intercompany loans and advances denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts, and as such, changes in fair value are recorded in the period of change in the consolidated statements of operations. ~~Additionally,~~ Mattel utilizes derivative contracts to hedge certain purchases of commodities, ~~including certain raw materials.~~which were not material. As of ~~September 30,~~March 31, 2021, March 31, 2020, ~~September 30, 2019,~~ and December 31, ~~2019,~~2020, Mattel held foreign currency forward exchange contracts and other commodity derivative instruments, with notional amounts of ~~$903.1~~$951.5 million, ~~$832.4 million,~~$1.37 billion, and ~~$742.0~~$855.0 million, respectively.

1514

The following tables present Mattel's derivative assets and liabilities:


		Derivative Assets								Derivative Assets
		Fair Value						Balance Sheet Classification		Balance Sheet Classification	Fair Value
		September 30, 2020		September 30, 2019		December 31, 2019					March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)									(In thousands)
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments								Derivatives designated as hedging instruments
Foreign currency forward exchange contracts and other		$	5,340	$	22,077	$	10,227	Prepaid expenses and other current assets
Foreign currency forward exchange contracts and other		896		4,942		715		Other noncurrent assets
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Prepaid expenses and other current assets	$	4,534	$	21,121	$	3,641
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Other noncurrent assets	1,250		2,525		50
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	6,236	$	27,019	$	10,942		Total derivatives designated as hedging instruments		$	5,784	$	23,646	$	3,691
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments								Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts and other		$	2,337	$	619	$	4,060	Prepaid expenses and other current assets
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Prepaid expenses and other current assets	$	2,050	$	13,811	$	1,982
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Other noncurrent assets	0		0		38
Total derivatives not designated as hedging instruments									Total derivatives not designated as hedging instruments		$	2,050	$	13,811	$	2,020
		$	8,573	$	27,638	$	15,002				$	7,834	$	37,457	$	5,711

		Derivative Liabilities								Derivative Liabilities
		Fair Value						Balance Sheet Classification		Balance Sheet Classification	Fair Value
		September 30, 2020		September 30, 2019		December 31, 2019					March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)									(In thousands)
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments								Derivatives designated as hedging instruments
Foreign currency forward exchange contracts and other		$	9,256	$	426	$	2,500	Accrued liabilities
Foreign currency forward exchange contracts and other		3,602		48		213		Other noncurrent liabilities
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Accrued liabilities	$	11,009	$	6,841	$	20,330
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Other noncurrent liabilities	808		2,507		4,361
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	12,858	$	474	$	2,713		Total derivatives designated as hedging instruments		$	11,817	$	9,348	$	24,691
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments								Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts and other		$	984	$	2,736	$	263	Accrued liabilities
Foreign currency forward exchange contracts and other		99		0		0		Other noncurrent liabilities
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Accrued liabilities	$	5,487	$	1,594	$	803
Foreign currency forward exchange and other contracts									Foreign currency forward exchange and other contracts	Other noncurrent liabilities	0		224		0
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	1,083	$	2,736	$	263		Total derivatives not designated as hedging instruments		$	5,487	$	1,818	$	803
		$	13,941	$	3,210	$	2,976				$	17,304	$	11,166	$	25,494

The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations:

For the Three Months Ended
September 30, 2020 September 30, 2019 Statements of
Operations
Classification
Amount of (Loss) Recognized in OCI Amount of Gain Reclassified from Accumulated OCI to Statement of Operations Amount of Gain Recognized in OCI Amount of Gain Reclassified from Accumulated OCI to Statement of Operations
(In thousands)
Derivatives designated as hedging instruments
Foreign currency forward exchange contracts and other $ (15,709) $ 7,069 $ 12,996 $ 6,394 Cost of sales

For the Nine Months Ended
September 30, 2020 September 30, 2019
Amount of (Loss) Recognized in OCI Amount of Gain Reclassified from Accumulated OCI to Statement of Operations Amount of Gain Recognized in OCI Amount of Gain Reclassified from Accumulated OCI to Statement of Operations Statements of
Operations
Classification
(In thousands)
Derivatives designated as hedging instruments
Foreign currency forward exchange contracts and other $ (1,815) $ 13,978 $ 22,068 $ 9,645 Cost of sales

Derivatives Designated As Hedging Instruments

For the Three Months Ended

March 31, 2021

March 31, 2020

Statements of Operations Classification

(In thousands)

Foreign currency forward exchange contracts:

Amount of gains recognized in OCI

4,057

9,190

Amount of (losses) gains reclassified from accumulated OCI to consolidated statements of operations

(3,314)

3,210

Cost of sales

The net (losses) gains ~~are~~reclassified from accumulated other comprehensive loss to the consolidated statements of operations during the three months ended March 31, 2021 and 2020, respectively, were offset by the changes in cash flows associated with the underlying hedged transactions.

Amount of Gain (Loss) Recognized in the Statements of Operations Statements of Operations
Classification
For the Three Months Ended
September 30,
2020 September 30,
2019
(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts and other $ 232 $ (9,965) Other non-operating (income) expense, net

Amount of (Loss) Recognized in the Statements of Operations Statements of Operations
Classification
For the Nine Months Ended
September 30,
2020 September 30,
2019
(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts and other $ (30,015) $ (6,097) Other non-operating (income) expense, net


	Derivatives Not Designated As Hedging Instruments
	For the Three Months Ended
	March 31, 2021		March 31, 2020		Statements of Operations Classification
	(In thousands)
Amount of net loss recognized in the Statements of Operations
Foreign currency forward exchange and other contract (losses)	$	(8,636)	$	(38,369)	Other non-operating income/expense, net
Foreign currency forward exchange and other contract gains	639		0		Cost of sales
	$	(7,997)	$	(38,369)

The net ~~gains (losses) are~~losses recognized in the consolidated statements of operations during the three months ended March 31, 2021 and 2020, respectively, were offset by foreign currency transaction gains and losses on the related ~~transactions.~~hedged balances.

~~13.~~14. 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 ~~September 30,~~March 31, 2021, March 31, 2020, ~~September 30, 2019,~~ and December 31, ~~2019~~2020 and ~~indicates~~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, either directly or indirectly.

•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.

1716

Mattel's financial assets and liabilities include the following:


		September 30, 2020									March 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(In thousands)									(In thousands)
Assets
Assets:										Assets:
Foreign currency forward exchange contracts and other (a)	Foreign currency forward exchange contracts and other (a)	$	0	$	8,573	$	0	$	8,573	Foreign currency forward exchange contracts and other (a)	$	0	$	7,834	$	0	$	7,834
Available-for-sale security (b)		3,823		0		0		3,823
Available-for-sale (b)										Available-for-sale (b)	6,232		0		0		6,232
Total assets	Total assets	$	3,823	$	8,573	$	0	$	12,396	Total assets	$	6,232	$	7,834	$	0	$	14,066
Liabilities
Liabilities:										Liabilities:
Foreign currency forward exchange contracts and other (a)	Foreign currency forward exchange contracts and other (a)	$	0	$	13,941	$	0	$	13,941	Foreign currency forward exchange contracts and other (a)	$	0	$	17,304	$	0	$	17,304

		September 30, 2019									March 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(In thousands)									(In thousands)
Assets
Assets:										Assets:
Foreign currency forward exchange contracts and other (a)	Foreign currency forward exchange contracts and other (a)	$	0	$	27,638	$	0	$	27,638	Foreign currency forward exchange contracts and other (a)	$	0	$	37,457	$	0	$	37,457
Available-for-sale security (b)		3,284		0		0		3,284
Available-for-sale (b)										Available-for-sale (b)	3,725		0		0		3,725
Total assets	Total assets	$	3,284	$	27,638	$	0	$	30,922	Total assets	$	3,725	$	37,457	$	0	$	41,182
Liabilities
Liabilities:										Liabilities:
Foreign currency forward exchange contracts and other (a)	Foreign currency forward exchange contracts and other (a)	$	0	$	3,210	$	0	$	3,210	Foreign currency forward exchange contracts and other (a)	$	0	$	11,166	$	0	$	11,166

		December 31, 2019									December 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(In thousands)									(In thousands)
Assets
Assets:										Assets:
Foreign currency forward exchange contracts and other (a)	Foreign currency forward exchange contracts and other (a)	$	0	$	15,002	$	0	$	15,002	Foreign currency forward exchange contracts and other (a)	$	0	$	5,711	$	0	$	5,711
Available-for-sale security (b)		3,530		0		0		3,530
Available-for-sale (b)										Available-for-sale (b)	4,268		0		0		4,268
Total assets	Total assets	$	3,530	$	15,002	$	0	$	18,532	Total assets	$	4,268	$	5,711	$	0	$	9,979
Liabilities
Liabilities:										Liabilities:
Foreign currency forward exchange contracts and other (a)	Foreign currency forward exchange contracts and other (a)	$	0	$	2,976	$	0	$	2,976	Foreign currency forward exchange contracts and other (a)	$	0	$	25,494	$	0	$	25,494

____________________________________________

(a)The fair value of the foreign currency forward exchange contracts and other commodity derivative instruments is 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 is based on the quoted price on an active public exchange.

Other Financial Instruments

Mattel's financial instruments include 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 values because of their short-term nature. Cash and equivalents are classified as Level 1 and all other financial instruments are classified as Level 2 within the fair value hierarchy.

The estimated fair value of Mattel's long-term debt was ~~$2.98~~$3.05 billion (compared to a carrying value of $2.88 billion) as of March 31, 2021, $2.77 billion (compared to a carrying value of $2.90 billion) as of ~~September 30,~~March 31, 2020, ~~$2.84 billion (compared to a carrying value of $2.90 billion) as of September 30, 2019,~~ and ~~$3.00~~$3.11 billion (compared to a carrying value of $2.90 billion) as of December 31, ~~2019.~~2020. The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and are classified as Level 2 within the fair value hierarchy.

1817

~~14.~~15. Earnings Per Share

The following table reconciles basic and diluted earnings per common share for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands, except per share amounts)
Basic
Net income (loss) $ 315,994 $ 70,596 $ (3,919) $ (213,687)
Weighted-average number of common shares 347,628 346,698 347,206 346,210
Basic net income (loss) per common share $ 0.91 $ 0.20 $ (0.01) $ (0.62)
Diluted
Net income (loss) $ 315,994 $ 70,596 $ (3,919) $ (213,687)
Weighted-average number of common shares 347,628 346,698 347,206 346,210
Dilutive stock options and restricted stock units ("RSUs") (a)
1,086 1,789 0 0
Weighted-average number of common and potential common shares 348,714 348,487 347,206 346,210
Diluted net income (loss) per common share $ 0.91 $ 0.20 $ (0.01) $ (0.62)


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(In thousands, except per share amounts)
Basic:
Net loss	$	(115,218)	$	(210,741)
Weighted-average number of common shares	349,041		346,867
Basic net loss per common share	$	(0.33)	$	(0.61)

Diluted:
Net loss	$	(115,218)	$	(210,741)
Weighted-average number of common shares	349,041		346,867
Dilutive stock options and restricted stock units ("RSUs") (a)	0		0
Weighted-average number of common and potential common shares	349,041		346,867
Diluted net loss per common share	$	(0.33)	$	(0.61)

_______________________________________

(a)Nonqualified stock options and RSUs totaling 22.3 million and 25.3 million shares were excluded from the calculation of diluted net income per common share for the three months ended September 30, 2020 and 2019, respectively, because their effect would be antidilutive. Mattel was in a net loss position for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ and, accordingly, all outstanding nonqualified stock options and RSUs were excluded from the calculation of diluted net loss per common share because their effect would be antidilutive.

~~15.~~16. 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 ~~2019~~2020 Annual Report on Form 10-K.

A summary of the components of net periodic benefit cost for Mattel's defined benefit pension plans is as follows:

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Service cost $ 1,015 $ 923 $ 3,236 $ 3,557
Interest cost 3,729 4,812 11,247 14,478
Expected return on plan assets (4,899) (5,402) (14,722) (16,280)
Amortization of prior service cost 37 16 123 48
Recognized actuarial loss 2,355 1,832 7,070 5,496
$ 2,237 $ 2,181 $ 6,954 $ 7,299


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(In thousands)
Service cost	$	1,293	$	1,109
Interest cost	2,540		3,781
Expected return on plan assets	(4,627)		(4,921)
Amortization of prior service cost	111		43
Recognized actuarial loss	2,785		2,359
	$	2,102	$	2,371

A summary of the components of net periodic benefit ~~credit~~cost for Mattel's postretirement benefit plans is as follows:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020
		(In thousands)									(In thousands)
Interest cost	Interest cost	$	35	$	50	$	104	$	150	Interest cost	$	19	$	35
Amortization of prior service credit	Amortization of prior service credit	(509)		(510)		(1,528)		(1,528)		Amortization of prior service credit	(509)		(509)
Recognized actuarial gain	Recognized actuarial gain	(19)		(96)		(56)		(288)		Recognized actuarial gain	(2)		(19)
		$	(493)	$	(556)	$	(1,480)	$	(1,666)		$	(492)	$	(493)

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, Mattel made cash contributions totaling approximately $9$1 million related to its defined benefit pension and postretirement benefit plans. During the remainder of ~~2020,~~2021, Mattel expects to make additional cash contributions of approximately $3$16 million.

~~16.~~17. Share-Based Payments

Mattel has various stock compensation plans, which are more fully described in Part II, Item 8 "Financial Statements and Supplementary Data—Note 8 to the Consolidated Financial Statements—Share-Based Payments" in the ~~2019~~2020 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, RSUs, performance awards, dividend equivalent rights, and shares of common stock to officers, employees, and other persons 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 ~~RSUs~~performance awards generally provide for vesting over, or at the end of, a period of three years from the date of grant.

As of ~~September 30, 2020,~~March 31, 2021, 3 long-term incentive programs were in place with the following performance cycles: (i) a January 1, ~~2018–~~2019–December 31, ~~2020~~2021 performance cycle, (ii) a January 1, ~~2019–~~2020–December 31, ~~2021~~2022 performance cycle, and (iii) a January 1, ~~2020–~~2021–December 31, ~~2022~~2023 performance cycle.

Compensation expense, included within other selling and administrative expenses in the consolidated statements of operations, related to stock options, RSUs, and ~~RSUs~~performance awards is as follows:

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Stock option compensation expense $ 3,095 $ 2,786 $ 8,602 $ 7,359
RSU compensation expense (a) 13,437 12,045 31,344 31,781
$ 16,532 $ 14,831 $ 39,946 $ 39,140

~~_______________________________________~~

~~(a)~~Includes compensation expense associated with Mattel's long-term incentive programs of $5.5 million and $9.4 million for the three and nine months ended September 30, 2020, respectively, and $3.9 million and $6.0 million for the three and nine months ended September 30, 2019, respectively.


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(In thousands)
Stock option compensation expense	$	2,783	$	3,131
RSU compensation expense	6,357		7,361
Performance award compensation expense	5,972		3,783
	$	15,112	$	14,275

As of ~~September 30, 2020,~~March 31, 2021, total unrecognized compensation expense related to unvested share-based payments totaled ~~$88.3~~$79.0 million and is expected to be recognized over a weighted-average period of ~~2.1~~2.0 years.

Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises and the vesting of ~~RSUs. NaN~~RSUs and performance awards. For the three months ended March 31, 2021, cash received for stock option exercises was $1.3 million. For the three months ended March 31, 2020, 0 cash was received for stock option ~~exercises during the nine months ended September 30, 2020 and 2019.~~

exercises.

~~17.~~18. Other Selling and Administrative Expenses

Other selling and administrative expenses include the following:

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Design and development $ 45,495 $ 48,811 $ 136,609 $ 143,441
Identifiable intangible asset amortization 9,813 9,824 29,465 30,162

~~18. Foreign Currency Transaction Exposure~~

Currency exchange rate fluctuations may impact Mattel's results of operations and cash flows. Mattel's currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income (loss) in the consolidated statements of operations. Gains and losses on unhedged intercompany loans and advances are recorded as a component of other non-operating (income) expense, net in the consolidated statements of operations in the period in which the currency exchange rate changes. Inventory transactions denominated in the Euro, Mexican peso, British pound sterling, Canadian dollar, Australian dollar, Russian ruble, and Brazilian real were the primary transactions that caused foreign currency transaction exposure for Mattel during the nine months ended September 30, 2020.

~~Currency transaction (losses) gains included in the consolidated statements of operations are as follows:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Operating income (loss) $ (6,461) $ 1,316 $ (8,406) $ (1,782)
Other non-operating (income) expense, net (553) (1,254) (2,988) (1,804)
Currency transaction (losses) gains, net $ (7,014) $ 62 $ (11,394) $ (3,586)


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(In thousands)
Design and development	$	43,981	$	44,628
Identifiable intangible asset amortization	9,514		9,965

19. Restructuring Charges

Optimizing for Growth (formerly Capital ~~Light Program~~Light)

In connection with the ~~Capital Light program,~~Program, Mattel recorded severance and other restructuring ~~charges~~costs in the following cost and expense categories within the consolidated statements of ~~operations as follows:~~operations:


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020
		(In thousands)									(In thousands)
Cost of sales (a)	Cost of sales (a)	$	348	$	8,430	$	4,812	$	11,913	Cost of sales (a)	$	1,932	$	3,057
Other selling and administrative expenses (b)	Other selling and administrative expenses (b)	2,259		7,908		6,379		15,879		Other selling and administrative expenses (b)	5,710		2,746
		$	2,607	$	16,338	$	11,191	$	27,792		$	7,642	$	5,803

_______________________________________

(a)Severance and other restructuring costs recorded within cost of sales in the consolidated statements of operations include charges associated with the consolidation of manufacturing facilities.

(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 22 to the Consolidated Financial Statements—Segment Information."

The following table summarizes Mattel's severance and other restructuring charges activity related to the ~~Capital Light program~~Program for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:


		Liability at December 31, 2019		Charges (a)		Payments/Utilization		Liability at September 30, 2020			Liability at December 31, 2020		Charges (a)		Payments/Utilization		Liability at March 31, 2021
		(In thousands)									(In thousands)
Severance	Severance	$	6,151	$	6,039	$	(7,197)	$	4,993	Severance	$	5,294	$	4,342	$	(1,405)	$	8,231
Other restructuring charges	Other restructuring charges	11,484		5,152		(16,548)		88		Other restructuring charges	30		3,300		(3,071)		259
		$	17,635	$	11,191	$	(23,745)	$	5,081		$	5,324	$	7,642	$	(4,476)	$	8,490

_______________________________________

(a)Other restructuring charges consist primarily of ~~expenses~~charges associated with the consolidation of manufacturing facilities.

As of ~~September 30, 2020,~~March 31, 2021, Mattel has recorded cumulative severance and other restructuring charges related to the ~~Capital Light program~~Program of ~~$48.8~~approximately $58 million, which include approximately ~~$14~~$17 million of non-cash charges. ~~Mattel expects~~Furthermore, cumulatively, in conjunction with previous actions taken under the Program, total expected cash expenditures are approximately $140 to ~~incur~~$165 million and total ~~severance and other restructuring charges, excluding~~ non-cash charges are $40 to $45 million.

During the three months ended March 31, 2021, in conjunction with the Program, Mattel completed the sale of ~~approximately $38 million related to the Capital Light program.~~a manufacturing plant based in Mexico, which included land and buildings, resulting in a pre-tax gain of $15.8 million.

Other Cost Savings Actions

~~In connection with Mattel’s continued efforts~~During the three months ended March 31, 2020, Mattel recorded severance charges of approximately $5 million, primarily related to actions taken to further streamline its organizational structure and restore profitability, on May 4, 2020, Mattel committed to a planned 4% reduction in its non-manufacturing workforce. The timing of this action was accelerated due to the impact of COVID-19.

~~The following table summarizes Mattel's severance charges activity related to other cost savings actions for the nine months ended September 30, 2020:~~

Liability at December 31, 2019 Charges (a) Payments/Utilization Liability at September 30, 2020
(In thousands)
Severance (a) $ 0 $ 18,142 $ (9,203) $ 8,939

~~(a)~~Severance charges recorded within other selling and administrative expenses in the consolidated statements of operations are included in corporate and other expense in "Note 22 to the Consolidated Financial Statements—Segment Information."

Mattel expects to incur additional severance and restructuring charges of approximately $2 million related to other cost savings actions, consisting solely of cash expenditures for employee termination and severance costs, through the end of 2020.

During the first nine months of 2020, Mattel recorded additional severance and other restructuring charges of approximately $6 million, related to actions initiated in the prior year associated with the Structural Simplification cost savings program.structure.

20. Income Taxes

Mattel's provision for income taxes was ~~$22.1~~$20.3 million and ~~$46.8~~$11.9 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, and $31.4 million and $46.2 million for the three and nine months ended September 30, 2019,~~ respectively. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, Mattel recognized a net discrete tax expense of $7.3 million, primarily related to income taxes recorded on a discrete basis in various jurisdictions and an expense for reassessments of prior year's tax liabilities. During the three months ended March 31, 2020, Mattel recognized a net discrete tax expense of ~~$1.7~~$6.4 million ~~and $11.4 million, respectively,~~ primarily related to an expense for reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. During the three and nine months ended September 30, 2019, Mattel recognized a discrete tax benefit of $13.4 million related to the reassessment of future realizability of certain foreign deferred tax assets, offset by discrete tax expenses of $13.5 million and $12.3 million, respectively, related to reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. As a result of the establishment of a valuation allowance on U.S. deferred tax assets in 2017, there was 0 U.S. tax benefit provided for U.S. losses during the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

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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 realized. Mattel maintains a valuation allowance on its deferred tax assets until there is sufficient evidence to support the release of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of a portion of these deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount, if any, of the valuation allowance release are subject to change depending on the level of earnings that Mattel is able to achieve in the tax jurisdictions in which a valuation allowance has been recorded.

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 twelve months, the total unrecognized tax benefits could decrease by approximately ~~$11.2~~$31.6 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.

21. Contingencies

Litigation Related to Yellowstone do Brasil Ltda.

Yellowstone do Brasil Ltda. (formerly known as Trebbor Informática Ltda.) was a customer of Mattel's subsidiary Mattel do Brasil Ltda. when a commercial dispute arose between Yellowstone and Mattel do Brasil regarding the supply of product and related payment terms. As a consequence of the dispute, in April 1999, Yellowstone filed a declarative action against Mattel do Brasil before the 15th Civil Court of Curitiba – State of Parana (the "Trial Court"), requesting the annulment of its security bonds and promissory notes given to Mattel do Brasil as well as requesting the Trial Court to find Mattel do Brasil liable for damages incurred as a result of Mattel do Brasil’s alleged abrupt and unreasonable breach of an oral exclusive distribution agreement between the parties relating to the supply and sale of toys in Brazil. Yellowstone's complaint sought alleged loss of profits of approximately $1 million, plus an unspecified amount of damages consisting of: (i) compensation for all investments made by Yellowstone to develop Mattel do Brasil's business; (ii) reimbursement of the amounts paid by Yellowstone to terminate labor and civil contracts in connection with the business; (iii) compensation for alleged unfair competition and for the goodwill of trade; and (iv) compensation for non-pecuniary 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 the approximate amount of $4 million.

During the evidentiary phase a first accounting report was submitted by a court-appointed expert. Such report stated that Yellowstone had invested approximately $3 million in its business. Additionally, the court-appointed expert calculated a loss of profits compensation of approximately $1 million. Mattel do Brasil challenged the report since it was not made based on the official accounting documents of Yellowstone and since the report calculated damages based only on documents unilaterally submitted by Yellowstone.

The Trial Court accepted the challenge and ruled that a second accounting examination should take place in the lawsuit. Yellowstone appealed the decision to the Court of Appeals of the State of Parana (the "Appeals Court"), but it was upheld by the Appeals Court.

The second court-appointed expert’s report submitted at trial did not assign a value to any of Yellowstone’s claims and found no evidence of causation between Mattel do Brasil's actions and such claims.

In January 2010, the Trial Court ruled in favor of Mattel do Brasil and denied all of Yellowstone’s claims based primarily on the lack of any causal connection between the acts of Mattel do Brasil and Yellowstone’s alleged damages. Additionally, the Trial Court upheld Mattel do Brasil's counterclaim and ordered Yellowstone to pay Mattel do Brasil approximately $4 million. The likelihood of Mattel do Brasil recovering this amount was uncertain due to the fact that Yellowstone was declared insolvent and filed for bankruptcy protection. In February 2010, Yellowstone filed a motion seeking clarification of the decision which was denied.

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In September 2010, Yellowstone filed a further appeal with the Appeals Court. Under Brazilian law, the appeal was de novo and Yellowstone restated all of the arguments it made at the Trial Court level. Yellowstone did not provide any additional information supporting its unspecified alleged damages. The Appeals Court held hearings on the appeal in March and April 2013. On July 26, 2013, the Appeals Court awarded Yellowstone approximately $17 million in damages, plus attorney's fees, as adjusted for inflation and interest. The Appeals Court also awarded Mattel do Brasil approximately $7.5 million on its counterclaim, as adjusted for inflation. On August 2, 2013, Mattel do Brasil filed a motion with the Appeals Court for clarification since the written decision contained clear errors in terms of amounts awarded and interest and inflation adjustments. Mattel do Brasil's motion also asked the Appeals Court to decide whether Yellowstone’s award could be offset by the counterclaim award, despite Yellowstone's status as a bankrupt entity. Yellowstone also filed a motion for clarification on August 5, 2013. A decision on the clarification motions was rendered on November 11, 2014, and the Appeals Court accepted partially the arguments raised by Mattel do Brasil. As a result, the Appeals Court awarded Yellowstone approximately $14.5 million in damages, as adjusted for inflation and interest, plus attorney's fees. The Appeals Court also awarded Mattel do Brasil approximately $7.5 million on its counterclaim, as adjusted for inflation. The decision also recognized the existence of legal rules that support Mattel do Brasil's right to offset its counterclaim award of approximately $7.5 million. Mattel do Brasil filed a new motion for clarification with the Appeals Court on January 21, 2015, due to the incorrect statement made by the reporting judge of the Appeals Court, that the court-appointed expert analyzed the "accounting documents" of Yellowstone. On April 26, 2015, a decision on the motion for clarification was rendered. The Appeals Court ruled that the motion for clarification was denied and imposed a fine on Mattel do Brasil equal to 1% of the value of the claims made for the delay caused by the motion. On July 3, 2015, Mattel do Brasil filed a special appeal to the Superior Court of Justice based upon both procedural and substantive grounds. This special appeal sought to reverse the Appeals Court's decision of July 26, 2013, and to reverse the fine as inappropriate under the law. This special appeal was submitted to the Appeals Court.

Yellowstone also filed a special appeal with the Appeals Court in February 2015, which was made available to Mattel do Brasil on October 7, 2015. Yellowstone's special appeal sought to reverse the Appeals Court decision with respect to: (a) the limitation on Yellowstone's loss of profits claim to the amount requested in the complaint, instead of the amount contained in the first court-appointed experts report, and (b) the award of damages to Mattel do Brasil on the counterclaim, since the specific amount was not requested in Mattel do Brasil's counterclaim brief.

On October 19, 2015, Mattel do Brasil filed its answer to the special appeal filed by Yellowstone and Yellowstone filed its answer to the special appeal filed by Mattel do Brasil. On April 4, 2016, the Appeals Court rendered a decision denying the admissibility of Mattel's and Yellowstone's special appeals. On May 11, 2016, both Mattel and Yellowstone filed interlocutory appeals.

On August 31, 2017, the reporting justice for the Appeals Court denied Yellowstone’s interlocutory appeal. As to Mattel, the reporting justice reversed the fine referenced above that had been previously imposed on Mattel for filing a motion for clarification. However, the reporting justice rejected Mattel’s arguments on the merits of Yellowstone’s damages claims. On September 22, 2017, Mattel filed a further appeal to the full panel of five appellate justices to challenge the merits of Yellowstone's damages claims. Yellowstone did not file a further appeal.

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.

On October 2, 2018, the Appeals Court rejected Mattel's merits appeal, and affirmed the prior rulings in favor of Yellowstone. 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. On January 27, 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 ~~September 30, 2020,~~March 31, 2021, Mattel assessed its probable loss related to the Yellowstone matter and has accrued a reserve, which was not material.

Litigation Related to the Fisher-Price Rock 'n Play Sleeper

A number of putative class action lawsuits 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 15 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 for pre-trial purposes pursuant to the federal courts’ Multi-District Litigation program.

2422

NaN additional lawsuits are pending against Fisher-Price, Inc. and Mattel, Inc. alleging that a product defect in the Sleeper caused the fatalities of or injuries to 40NaN children. Additionally, Fisher-Price, Inc. and/or Mattel, Inc. have also received letters from lawyers purporting to represent additional plaintiffs who are threatening to assert similar claims.

In addition, a stockholder has filed a derivative action in the Court of Chancery for the State of Delaware (Kumar v. Bradley, et al., filed July 7, 2020) alleging breach of fiduciary duty and unjust enrichment related to the development, marketing, and sale of the Sleeper. The defendants in the derivative action are ~~R. Todd Bradley, Richard Dickson, Joseph J. Euteneuer, Adriana Cisneros, Michael J. Dolan, Ynon Kreiz, Soren T. Laursen, Ann Lewnes, Roger Lynch, Dominic Ng, Judy D. Olian~~certain of Mattel's current and ~~Vasant M. Prabhu.~~former officers and directors. In August 2020, the derivative action was stayed pending further developments in the class action lawsuits.

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 cannot be made at this time.

Litigation and Investigations Related to Whistleblower Letter

In December 2019 and January 2020, 2 stockholders filed separate complaints styled as class actions against Mattel, Inc., and certain of its current and former officers, alleging violations of federal securities laws. 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 plaintiff and other stockholders to purchase Mattel common stock at artificially inflated prices.

In addition, a stockholder has filed a derivative action in the United States District Court for the District of Delaware (Moher v. Kreiz, et al., filed April 9, 2020) making allegations that are substantially identical to, or are based upon, the allegations of the class action lawsuits. The defendants in the derivative action are Ynon Kreiz, Margaret H. Georgiadis, Joseph J. Euteneuer, Joseph B. Johnson, R. Todd Bradley, Adriana Cisneros, Michael J. Dolan, Trevor A. Edwards, Frances D. Fergusson, Soren T. Laursen, Ann Lewnes, Kathy W. Loyd, Roger Lynch, Dominic Ng, Judy D. Olian, Vasant M. Prabhu, Dean A. Scarborough, Christopher A. Sinclair,certain of Mattel's current and former officers and directors, Mattel, Inc., and PricewaterhouseCoopers LLP. Subsequently, a nearly identical derivative action was filed by a different stockholder against the same defendants. The second lawsuit is styled as an amended complaint and replaces a complaint making unrelated allegations in a previously filed lawsuit already pending in Delaware federal court (Lombardi v. Kreiz, et al., amended complaint filed April 16, 2020). In May 2020, the derivative actions were consolidated and stayed pending further developments in the class action lawsuits.

The lawsuits seek unspecified compensatory damages, attorneys' fees, expert fees, costs 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 cannot be made at this time.

Mattel has also received ~~a subpoena in December 2019~~subpoenas from the ~~SEC,~~Securities and Exchange Commission (the "SEC"), seeking documents related to the whistleblower letter and subsequent investigation, and is responding to ~~the SEC's subpoena.~~those subpoenas. Mattel is also responding to requests from the United States Attorney's Office for the Southern District of New York ("SDNY") related to this matter. Mattel cannot predict the eventual scope, duration or outcome of potential legal action by the SEC or SDNY, if any, or whether any such action could have a material impact on Mattel's financial condition, results of operations or cash flows.

22. Segment Information

Mattel designs, manufactures, and markets a broad variety of toy products worldwide, which are sold to its customers and directly to consumers.

~~Gross Sales~~

~~Gross sales by categories are presented as follows:~~

~~Dolls—including brands such as~~ ~~Barbie~~,~~American Girl~~, ~~Enchantimals~~,~~and~~ ~~Polly Pocket.~~

~~Infant, Toddler, and Preschool—including brands such as~~ ~~Fisher-Price,Thomas & Friends~~, ~~Power Wheels~~, ~~Fireman Sam, and~~ ~~Shimmer and Shine~~ (~~Nickelodeon~~).

~~Vehicles—including brands such as~~ ~~Hot Wheels~~, ~~Matchbox~~, ~~CARS~~ (~~Disney Pixar), and~~ ~~Jurassic World~~ (~~NBCUniversal~~).

~~Action Figures, Building Sets, Games, and Other—including brands such as~~ ~~MEGA~~, ~~UNO~~, ~~Toy Story~~ (~~Disney Pixar~~), ~~Jurassic World~~ (~~NBCUniversal~~), ~~WWE, and~~ ~~Star Wars (Disney)~~.

Segment Data

Mattel's operating segments are: (i) North America, which consists of the U.S. and Canada; (ii) International; and (iii) American Girl. The North America and International segments sell products across categories, although some products are developed and adapted for particular international markets.

The following tables present information ~~about gross~~regarding net sales, operating income (loss), and assets by segment. Mattel does not include sales adjustments such as trade discounts and other allowances in the calculation of segment gross sales. See reconciliations of gross sales to net sales in the tables below. Mattel records these adjustments in its financial accounting systems at the time of sale to each customer, but the adjustments generally are not associated with categories, brands, and individual products. For this reason, Mattel's Chief Operating Decision Maker uses total net sales and gross sales by segment as measures to evaluate segment performance. Sales adjustments are included in the determination of segment income (loss) from operations based on the adjustments recorded in the financial accounting systems. Segment income (loss) represents each segment's operating income (loss), while consolidated operating income (loss) represents income (loss) from operations before net interest, other non-operating (income) expense, net, and income taxes as reported in the consolidated statements of operations. The corporate and other expense category includes operating costs not allocated to individual segments, including charges related to incentive ~~compensation, severance~~ and ~~other restructuring costs,~~ share-based compensation, ~~certain~~ corporate headquarters functions managed on a worldwide basis, ~~and~~ the impact of changes in foreign currency exchange rates on intercompany ~~transactions.~~

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Gross Sales by Segment
North America $ 991,609 $ 880,441 $ 1,758,912 $ 1,697,186
International 773,056 721,705 1,423,120 1,567,390
American Girl 53,738 54,764 120,896 134,726
Gross sales 1,818,403 1,656,910 3,302,928 3,399,302
Sales adjustments (186,712) (175,353) (345,031) (368,436)
Net sales $ 1,631,691 $ 1,481,557 $ 2,957,897 $ 3,030,866
transactions, and certain severance and other restructuring costs. Effective as of the first quarter of 2021, operating income by segment reviewed by the Chief Operating Decision Maker does not include certain corporate expenses which were historically allocated by segment. The prior period presentation of operating income by segment has been conformed to the current period's presentation.

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For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Segment Income (Loss)
North America (a) $ 344,420 $ 194,368 $ 430,371 $ 202,923
International (a) 183,220 89,244 139,372 61,434
American Girl (10,296) (11,079) (41,595) (41,442)
517,344 272,533 528,148 222,915
Corporate and other expense (b) (133,187) (122,446) (339,943) (251,255)
Operating income (loss) 384,157 150,087 188,205 (28,340)
Interest expense 50,415 47,689 149,010 140,881
Interest (income) (455) (821) (3,564) (4,625)
Other non-operating (income) expense, net (3,877) 1,264 (133) 2,874
Income (loss) before income taxes $ 338,074 $ 101,955 $ 42,892 $ (167,470)
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, 2021		March 31, 2020
	(In thousands)
Net Sales by Segment
North America	$	479,660	$	287,553
International	349,354		269,356
American Girl	45,178		37,160
Net sales	$	874,192	$	594,069


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(In thousands)
Operating Income (Loss) by Segment
North America (a)	$	123,374	$	13,985
International (a)	35,170		(28,861)
American Girl	(9,831)		(17,441)
	148,713		(32,317)
Corporate and other expense (b)	(117,675)		(117,493)
Operating income (loss)	31,038		(149,810)
Interest expense	130,482		48,980
Interest (income)	(820)		(2,084)
Other non-operating (income) expense, net	(1,086)		3,023
Loss before income taxes	$	(97,538)	$	(199,729)

(a)~~Segment~~Operating income (loss) included severance and restructuring expenses of ~~$0.3~~$1.9 million and ~~$4.8~~$3.1 million, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, and 2020, ~~respectively, and $8.4 million and $11.9 million, for the three and nine months ended September 30, 2019,~~ respectively, which were allocated to the North America and International segments. Segment income (loss) for the three and nine months ended September 30, 2019 also included charges of $3.9 million and $34.3 million, respectively, attributable to the inclined sleeper product recalls, substantially all of which was recorded in the North America segment.

(b)Corporate and other expense included severance and restructuring charges of ~~$6.7~~$5.7 million and ~~$30.5~~$7.5 million, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, and 2020, ~~respectively, and $11.3 million and $34.4 million, for the three and nine months ended September 30, 2019.~~respectively. Corporate and other expense also included expenses related to inclined sleeper product recall litigation of ~~$10.1~~$5.3 million and ~~$19.2~~$6.3 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, respectively, and incentive and share-based compensation for all periods presented.

Segment assets are comprised of accounts receivable and inventories, net of applicable allowances and reserves.


		September 30, 2020		September 30, 2019		December 31, 2019			March 31, 2021		March 31, 2020		December 31, 2020
		(In thousands)							(In thousands)
Assets by Segment	Assets by Segment							Assets by Segment
North America	North America	$	975,224	$	916,250	$	569,819	North America	$	585,221	$	480,738	$	664,696
International	International	818,710		906,788		721,251		International	520,717		455,918		713,650
American Girl	American Girl	66,333		60,171		35,004		American Girl	46,956		36,427		40,290
		1,860,267		1,883,209		1,326,074			1,152,894		973,083		1,418,636
Corporate and other	Corporate and other	129,500		109,613		105,789		Corporate and other	137,583		116,084		130,003
Accounts receivable and inventories, net	Accounts receivable and inventories, net	$	1,989,767	$	1,992,822	$	1,431,863	Accounts receivable and inventories, net	$	1,290,477	$	1,089,167	$	1,548,639

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~~The table below presents worldwide gross sales by categories:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Gross Sales by Categories
Dolls $ 690,466 $ 567,598 $ 1,177,358 $ 1,093,890
Infant, Toddler, and Preschool 404,064 430,973 744,208 876,595
Vehicles 369,388 346,939 713,723 744,437
Action Figures, Building Sets, Games, and Other 354,485 311,400 667,639 684,380
Gross sales 1,818,403 1,656,910 3,302,928 3,399,302
Sales adjustments (186,712) (175,353) (345,031) (368,436)
Net sales $ 1,631,691 $ 1,481,557 $ 2,957,897 $ 3,030,866

~~The table below presents supplemental disclosure of worldwide gross sales:~~

For the Three Months Ended For the Nine Months Ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
(In thousands)
Gross Sales by Top 3 Power Brands
Barbie $ 532,228 $ 412,840 $ 879,025 $ 762,849
Hot Wheels 312,788 293,295 607,885 619,030
Fisher-Price and Thomas & Friends 387,648 396,339 692,657 791,146
Other 585,739 554,436 1,123,361 1,226,277
Gross sales 1,818,403 1,656,910 3,302,928 3,399,302
Sales adjustments (186,712) (175,353) (345,031) (368,436)
Net sales $ 1,631,691 $ 1,481,557 $ 2,957,897 $ 3,030,866

Geographic Information

The table below presents information by geographic area. ~~Gross~~Net sales are attributed to countries based on location of the customer.


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			March 31, 2021		March 31, 2020
		(In thousands)									(In thousands)
Gross Sales by Geographic Area
Net Sales by Geographic Area										Net Sales by Geographic Area
North America	North America	$	1,045,347	$	935,205	$	1,879,808	$	1,831,912	North America	$	524,838	$	324,713
International	International									International
EMEA	EMEA	482,590		408,660		881,895		859,116		EMEA	238,169		173,323
Latin America	Latin America	186,644		213,535		313,995		430,095		Latin America	56,278		51,275
Asia Pacific	Asia Pacific	103,822		99,510		227,230		278,179		Asia Pacific	54,907		44,758
Total International	Total International	773,056		721,705		1,423,120		1,567,390		Total International	349,354		269,356
Gross sales		1,818,403		1,656,910		3,302,928		3,399,302
Sales adjustments		(186,712)		(175,353)		(345,031)		(368,436)
Net sales	Net sales	$	1,631,691	$	1,481,557	$	2,957,897	$	3,030,866	Net sales	$	874,192	$	594,069

23. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This update replaces the existing incurred loss impairment model with an expected loss model (referred to as the Current Expected Credit Loss model, or "CECL"). In November 2018, the FASB issued ASU 2018-19, ~~Codifications Improvements to Topic 326, Financial Instruments-Credit Losses,~~ which clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. Mattel adopted ASU 2016-13 and its related amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and ASU 2020-02) on January 1, 2020. The adoption of this new accounting standard and its related amendments did not have a material impact on Mattel's consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~, which modifies the disclosure requirements on fair value measurements, including the consideration of costs and benefits. ASU 2018-13 was effective for interim and annual reporting periods beginning on January 1, 2020. The amendments on changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are applied retrospectively to all periods presented upon their effective date. Mattel adopted ASU 2018-13 on January 1, 2020. The adoption of this new accounting standard did not have a material impact on Mattel's consolidated financial statements.

~~In March 2019, the FASB issued ASU 2019-02,~~ Entertainment - Films - Other Assets - Film Costs (Subtopic 926-20) and Entertainment - Broadcasters - Intangibles - Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials, which aligns the accounting for production costs of episodic television series with the accounting of films by removing the content distinction for capitalization. Mattel adopted ASU 2019-02 on January 1, 2020. The adoption of this new accounting standard did not have a material impact on Mattel's consolidated financial statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 will become effective for the fiscal year beginning on January 1, 2021. Early adoption is permitted and the amendments will be applied on a retrospective basis to all periods presented. Mattel is currently evaluating the impact of the adoption of ASU 2018-14 on its consolidated financial statements.

~~In December 2019, the FASB issued ASU~~ 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,, which simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify the accounting for other areas of Topic 740 by clarifying and amending existing guidance. ~~ASU 2019-12 will become effective for the fiscal year beginning on January 1, 2021. Early adoption is permitted.~~ The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries ~~will be~~are applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income ~~will be~~are applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments ~~will be~~are applied on a prospective basis. Mattel adopted ASU 2019-12 on January 1, 2021. The adoption of this new accounting standard did not have a material impact on Mattel's consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In March 2020 and January 2021, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2021-01, Reference Rate Reform (Topic 848): Scope, respectively. ASU 2020-04 and ASU 2021-01 provide optional expedients and exceptions for applying U.S. GAAP, to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The guidance in ASU 2020- 04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. Mattel is currently evaluating the impact of the adoption of ASU ~~2019-12~~2020-04 and ASU 2021-01 on its consolidated financial statements.

2925

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 ~~family of companies.~~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 ~~only with~~to corresponding periods.

The following discussion ~~also~~ includes ~~gross sales and~~ currency exchange rate impact, a non-GAAP financial ~~measures~~measure within the meaning of Regulation G promulgated by the ~~Securities and Exchange Commission~~SEC ("Regulation G"), to supplement the financial results as reported in accordance with generally accepted accounting principles ("GAAP"). ~~Gross sales represent sales to customers at invoice, excluding the impact of sales adjustments, such as trade discounts and other allowances.~~ The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates. Mattel uses ~~these~~this non-GAAP financial ~~measures~~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 ~~measures~~measure provides useful supplemental information to investors to allow them to better evaluate ongoing business performance and certain components of Mattel's results. ~~These measures are~~This measure is not, and should not be viewed as, a substitute for GAAP financial measures. ~~Refer to "Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q for a more detailed~~

The following discussion ~~including a reconciliation~~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 ~~non-GAAP~~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 ~~measure,~~accounting systems at the time of sale, such sales adjustments are generally not associated with categories, brands, and individual products.

Effective as of the first quarter of 2021, operating income by segment reviewed by the Chief Operating Decision Maker does not include certain corporate expenses which were historically allocated by segment. The prior period presentation of operating income by segment has been conformed to ~~net sales, its most directly comparable GAAP financial measure.~~the current period's presentation.

Note that amounts shown in millions within this Item 2 may not ~~foot~~sum due to rounding.

Overview

Mattel is a leading global toy company and owner of one of the strongest catalogs of children’s and family entertainment franchises in the world, creating innovative products and experiences that inspire, entertain and develop children through play. Mattel is focused on the following two-part strategy to transform Mattel ~~from a toy manufacturing company~~ into an intellectual property ("IP") driven, high-performing toy company:

•In the ~~short- to mid-term, restore~~short-term, improve profitability by ~~reshaping~~optimizing operations and ~~regain~~accelerate topline growth by growing Mattel's Power Brands and expanding Mattel's brand portfolio.

•In the ~~mid-~~mid-to-long-term, continue to ~~long-term, capture~~make progress on capturing the full value of Mattel's IP through franchise management and ~~the development of Mattel's~~ online retail and ~~e-commerce capabilities.~~e-commerce.

Mattel ~~engages consumers through its~~is the owner of a portfolio of iconic brands ~~as well as other popular intellectual properties that we own or license in partnership~~and partners with global entertainment ~~companies.~~companies to license other intellectual property. Mattel's ~~portfolio of~~ owned and licensed brands and products are organized into the following categories:

Dolls—including brands such as Barbie,, American Girl, Polly Pocket, Spirit (Universal) ~~American Girl~~,and Enchantimals,. Mattel's Dolls portfolio is driven by the flagship Barbie brand and ~~Polly Pocket~~. a collection of complementary brands offered globally. Empowering girls since 1959, Barbie has inspired the limitless potential of every girl by showing them that they can be anything. With an extensive portfolio of dolls and accessories, content, gaming, and lifestyle products,~~Barbie~~ ~~is the premier fashion doll for children around the world.~~ American Girl is best known for imparting valuable life lessons through its inspiring dolls and books, featuring diverse characters from past and present. Its products are sold directly to consumers via its catalog, website, and proprietary retail stores.

Infant, Toddler, and Preschool—including brands such as Fisher-Priceand Thomas & Friends, Power Wheels, and Fireman Sam~~, and~~ ~~Shimmer and Shine~~ (~~Nickelodeon~~). As a leader in play and child development, Fisher-Price’s mission is to provide meaningful solutions for parents and enrich children’s lives from birth to school readiness, helping families get the best possible start. Thomas & Friendsis an award-winning preschool train brand franchise that brings meaningful life lessons of friendship and teamwork to kids through content, toys, live events, and other lifestyle categories.

Vehicles—including brands such asHot Wheels,Matchbox,CARS ~~CARS~~ (Disney Pixar), and ~~Jurassic World~~ Mario Kart(~~NBCUniversal~~Nintendo).In production for over 50 years, Hot Wheels continues to push the limits of performance and design, and ignites the challenger spirit of kids, adults, and collectors. From ~~diecast cars,~~die-cast vehicles, to tracks, playsets, and ~~advanced play products,~~accessories, the ~~Hot Wheels~~Mattel vehicles portfolio has broad appeal that engages and excites ~~kids.~~kids of all ages.

Action Figures, Building Sets, Games, and Other—including brands such as Masters of the Universe, MEGA, UNO, Toy Story(Disney Pixar), Jurassic World(NBCUniversal),WWE, and Star Wars ~~(Disney)~~. (Disney). From big blocks to small bricks, first builders to advanced collectors, MEGAcreates ~~products~~building sets that ~~spark purposeful play and~~ encourage kids and adults to ~~"build beyond."~~unlock their creative potential. America's number one game, UNOis the classic matching card game that is easy to ~~pick up~~learn and fast fun for everyone.

COVID-19 Update

~~A novel strain~~The impact of the coronavirus disease ("COVID-19") ~~was reported in December 2019 and characterized as a pandemic by the World Health Organization in March 2020. The impact of COVID-19~~ and the actions taken by governments, businesses, and individuals in response to it have resulted in significant global economic disruption, including, but not limited to, temporary business closures, reduced retail traffic, volatility in financial markets, and restrictions on travel.

~~The negative impact of retail disruptions and closures resulting from COVID-19 abated during the third quarter of 2020, with~~ ~~substantially all~~ ~~retail outlets selling Mattel’s products open exiting the third quarter.~~ Strong consumer demand for toys during the ~~third~~first quarter of 2021 contributed to double digit year-over-year increases in net sales across all reportable segments and in ~~the North America~~each geographic region, despite COVID-19 disruption and ~~EMEA regions. Toy consumer demand improved throughout the third~~local restrictions that impacted certain locations. Mattel’s first quarter ~~in the APAC~~of 2020 results and ~~Latin America regions as retail doors continued to open, contributing to an improved year-over-year~~ net sales ~~performance in the third quarter as compared to the first half of 2020. American Girl retail stores~~ were significantly and negatively impacted by retail disruption and the permanent closure of certain retail stores in 2020. This was substantially offset by higher direct-to-consumer channel sales, which doubled during the third quarter of 2020, resulting in a slight decrease in year-over-year net sales for the American Girl segment.

Mid-single digit growth is expected for fourth quarter gross sales year-over-year, although there may be challenges with meeting strong product demand. Further, if the pandemic worsens, there may be an adverse impact on net sales, profitability, and working capital which may be materially greater than Mattel's current estimates.COVID-19.

Mattel's manufacturing and distribution network was fully operational as of ~~September 30, 2020.~~March 31, 2021. To the extent COVID-19 causes manufacturing and distribution disruption, particularly during seasonally-high periods of production and/or distribution, ~~during the fourth quarter of 2020,~~ Mattel’s ability to meet demand may be materially impacted. Due to the uncertainty of the duration and severity of the pandemic and resulting effects, it is not possible to estimate the extent of such impact.

Prolonged disruption to Mattel’s customers, supply chain, or other critical operations would result in material adverse effects to Mattel’s business and its liquidity. The ~~ultimate~~future impact of COVID-19 on Mattel’s results of operations, financial position, and cash flows remains uncertain at this time due to rapidly evolving circumstances. Mattel is closely monitoring the situation and actively managing its business as developments occur. Refer to Part ~~II,~~I, Item 1A "Risk Factors" ~~of this Quarterly~~in the 2020 Annual Report on Form ~~10-Q~~10-K for further discussion regarding potential impacts of COVID-19 on Mattel’s business.

The specific line items that have been materially affected by these impacts of COVID-19 are noted within "Results of Operations–~~Third~~First Quarter" and "Results of Operations–First Nine Months" below. Additional discussion of the impact of COVID-19 on Mattel's liquidity and capital resources is discussed in "Liquidity and Capital Resources" and in "Cost Savings Programs" below. In addition to the impacts of COVID-19 discussed below, it is reasonably likely that the pandemic and its resulting effects could have other unforeseen consequences that affect Mattel’s business.

~~Cybersecurity Update~~

On July 28, 2020, Mattel discovered that it was the victim of a ransomware attack on its information technology systems that caused data on a number of systems to be encrypted. Promptly upon detection of the attack, Mattel began enacting its response protocols and taking a series of measures to stop the attack and restore impacted systems. Mattel contained the attack and, although some business functions were temporarily impacted, Mattel restored its operations. A forensic investigation of the incident has concluded, and no exfiltration of any sensitive business data or retail customer, supplier, consumer, or employee data was identified. There has been no material impact to Mattel's operations or financial condition as a result of the incident.

3127

Results of Operations—~~Third~~First Quarter

Consolidated Results

Net sales for the third quarter of 2020 were $1.63 billion, a 10% increase, as compared to $1.48 billion in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. Net income for the third quarter of 2020 was $316.0 million, or $0.91 per share, as compared to net income of $70.6 million, or $0.20 per share, in the third quarter of 2019, due to higher gross profit in the North America and International segments and lower advertising and promotion expenses.

The following table provides a summary of Mattel's consolidated results for the ~~third~~first quarter of ~~2020~~2021 and ~~2019:~~2020:


		For the Three Months Ended								Year/Year Change				For the Three Months Ended								Year/Year Change
		September 30, 2020				September 30, 2019								March 31, 2021				March 31, 2020
		Amount		% of Net Sales		Amount		% of Net Sales		%		Basis Points of Net Sales		Amount		% of Net Sales		Amount		% of Net Sales		%		Basis Points of Net Sales
		(In millions, except percentage and basis point information)												(In millions, except percentage and basis point information)
Net sales	Net sales	$	1,631.7	100.0	%	$	1,481.6	100.0	%	10	%	—	Net sales	$	874.2	100.0	%	$	594.1	100.0	%	47	%	—
Gross profit	Gross profit	$	832.4	51.0	%	$	686.4	46.3	%	21	%	470	Gross profit	$	409.0	46.8	%	$	255.2	43.0	%	60	%	380
Advertising and promotion expenses	Advertising and promotion expenses	102.5		6.3	%	170.4		11.5	%	-40	%	-520	Advertising and promotion expenses	74.1		8.5	%	76.3		12.8	%	-3	%	(430)
Other selling and administrative expenses	Other selling and administrative expenses	345.7		21.2	%	366.0		24.7	%	-6	%	-350	Other selling and administrative expenses	303.9		34.8	%	328.7		55.3	%	-8	%	(2,050)
Operating income		384.2		23.5	%	150.1		10.1	%	156	%	1,340
Operating income (loss)													Operating income (loss)	31.0		3.6	%	(149.8)		-25.2	%	n/m		2,880
Interest expense	Interest expense	50.4		3.1	%	47.7		3.2	%	6	%	-10	Interest expense	130.5		14.9	%	49.0		8.2	%	166	%	670
Interest (income)	Interest (income)	(0.5)		—	%	(0.8)		-0.1	%	-45	%	10	Interest (income)	(0.8)		-0.1	%	(2.1)		-0.4	%	-61	%	30
Other non-operating (income) expense, net	Other non-operating (income) expense, net	(3.9)				1.3							Other non-operating (income) expense, net	(1.1)				3.0
Income before income taxes		338.1		20.7	%	102.0		6.9	%	232	%	1,380
Loss before income taxes													Loss before income taxes	(97.5)		-11.2	%	(199.7)		-33.6	%	-51	%	2,240
Provision for income taxes	Provision for income taxes	22.1				31.4							Provision for income taxes	20.3				11.9
Net Income		$	316.0	19.4	%	$	70.6	4.8	%	348	%	1,460

Income from equity method investments													Income from equity method investments	2.6				0.9
Net Loss													Net Loss	$	(115.2)	-13.2	%	$	(210.7)	-35.5	%	-45	%	2,230

n/m - Not Meaningful

Sales

Net sales for the third quarter of 2020 were $1.63 billion, an increase of $150.1 million or 10%, as compared to $1.48 billion in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point.

The following table provides a summary of Mattel's consolidated gross ~~sales~~billings by categories, along with supplemental information by brand, for the ~~third~~first quarter of ~~2020~~2021 and ~~2019:~~2020:


		For the Three Months Ended				% Change as Reported		Currency Exchange Rate Impact				For the Three Months Ended						% Change as Reported				Currency Exchange Rate Impact
		September 30, 2020		September 30, 2019						March 31, 2021		March 31, 2020		% Change as Reported
		(In millions, except percentage information)								(In millions, except percentage information)
Gross Sales by Categories
Gross Billings by Categories											Gross Billings by Categories
Dolls	Dolls	$	690.5	$	567.6	22	%	-2	%		Dolls	$	381.3			$	225.9			69	%			1	%
Infant, Toddler, and Preschool	Infant, Toddler, and Preschool	404.1		431.0		-6	%	-1	%		Infant, Toddler, and Preschool	183.2		140.3				31	%			2	%
Vehicles	Vehicles	369.4		346.9		6	%	-2	%		Vehicles	215.4		185.7				16	%			1	%
Action Figures, Building Sets, Games, and Other		354.5		311.4		14	%	—	%
Gross Sales		$	1,818.4	$	1,656.9	10	%	-1	%
Action Figures, Building Sets, and Games											Action Figures, Building Sets, and Games	199.2		118.1				69	%			3	%
Gross Billings											Gross Billings	$	979.0	$	670.0			46	%			1	%
Sales Adjustments	Sales Adjustments	(186.7)		(175.4)							Sales Adjustments	(104.8)		(75.9)
Net Sales	Net Sales	$	1,631.7	$	1,481.6	10	%	-1	%		Net Sales	$	874.2	$	594.1			47	%			1	%

Supplemental Gross Sales Disclosure
Supplemental Gross Billings Disclosure											Supplemental Gross Billings Disclosure

Gross Sales by Top 3 Power Brands
Gross Billings by Top 3 Power Brands											Gross Billings by Top 3 Power Brands
Barbie	Barbie	$	532.2	$	412.8	29	%	-1	%		Barbie	$	276.2	$	147.5			87	%			1	%
Hot Wheels	Hot Wheels	312.8		293.3		7	%	-2	%		Hot Wheels	184.6		158.6				16	%			—	%
Fisher-Price and Thomas & Friends	Fisher-Price and Thomas & Friends	387.6		396.3		-2	%	-1	%		Fisher-Price and Thomas & Friends	171.6		128.8				33	%			1	%
Other	Other	585.7		554.4		6	%	-1	%		Other	346.6		235.1				47	%			1	%
Gross Sales		$	1,818.4	$	1,656.9	10	%	-1	%
Gross Billings											Gross Billings	$	979.0	$	670.0			46	%			1	%

Gross ~~sales~~billings were ~~$1.82 billion~~$979.0 million in the ~~third~~first quarter of ~~2020,~~2021, an increase of ~~$161.5~~$309.0 million or ~~10%~~46%, as compared to ~~$1.66 billion~~$670.0 million in the ~~third~~first quarter of ~~2019,~~2020, with ~~an unfavorable~~a favorable impact from changes in currency exchange rates of 1one percentage point. The increase in ~~third~~first quarter of ~~2020~~2021 gross ~~sales~~billings was primarily ~~due to~~driven by higher ~~sales~~billings of Dolls and Action Figures, Building Sets, Games, and Other.

~~Of the 22% increase in~~ Dolls gross ~~sales, 21%~~billings increased 69%, of which 57% was due to higher ~~sales~~billings of Barbie products, ~~primarily~~ driven by positive brand momentum and point of sale demand ("POS"). and 4% was due to higher billings of American Girl products.

~~Of the 6% decrease in~~ Infant, Toddler, and Preschool gross ~~sales, 3%~~billings increased 31%, all of which was due to ~~lower sales of~~ ~~Fisher-Price Friends~~ ~~products and 2% was due to lower sales~~higher billings of Fisher-Price andThomas & Friends products, primarily driven by higher billings of infant and newborn products.

~~Of the 6% increase in~~ Vehicles gross ~~sales, 5%~~billings increased 16%, of which 14% was due to higher ~~sales~~billings of Hot Wheels ~~products.~~products, driven by positive brand momentum and POS.

~~Of the 14% increase in~~ Action Figures, Building Sets, Games, and Other gross ~~sales; 10% was due to initial sales of~~ ~~Star Wars: The Child~~ ~~plush products; 7% was~~billings increased 69% due to higher ~~sales~~billings from the following products: 15% from initial billings of ~~card game products, including~~ ~~UNO~~Masters of the Universe;~~6% was due tohigher sales of~~, 15% from Jurassic World ~~products;~~, 9% from WWE, 9% fromplush, 8% from MEGA, and 4%7% from UNO.

Sales adjustments represent arrangements with Mattel’s customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. Sales adjustments as a percentage of net sales was ~~due~~relatively consistent at 12.0% for the first quarter of 2021, as compared to ~~higher sales~~12.8% for the first quarter of ~~family games products, including~~ ~~Pictionary~~ ~~and~~ ~~Scrabble. This was partially offset by lower sales of~~ ~~Toy Story 4~~ ~~products of 16% following its 2019 theatrical release.~~2020.

Cost of Sales

Cost of sales as a percentage of net sales was ~~49.0%~~53.2% in the ~~third~~first quarter of 2021, as compared to 57.0% in the first quarter of 2020. Cost of sales increased by $126.3 million, or 37%, to $465.2 million in the first quarter of 2021 from $338.9 million in the first quarter of 2020, as compared to ~~53.7% in the third quarter of 2019. Cost of sales increased by $4.2 million, or 1%, to $799.3 million in the third quarter of 2020 from $795.1 million in the third quarter of 2019, as compared to~~ a ~~10%~~47% increase in net sales. Within cost of sales, product and other costs increased by ~~$7.1~~$110.4 million, or 1%41%, to ~~$666.3~~$380.0 million in the ~~third~~first quarter of ~~2020~~2021 from ~~$659.1~~$269.6 million in the ~~third~~first quarter of ~~2019;~~2020; freight and logistics expenses increased by ~~$10.6~~$11.6 million, or ~~16%~~25%, to $77.0 million in the third quarter of 2020 from $66.4 million in the third quarter of 2019; and royalty expense decreased by $13.6 million, or 20%, to $56.0 million in the third quarter of 2020 from $69.6 million in the third quarter of 2019. Within cost of sales, certain inbound freight costs were previously classified as freight and logistics expenses. Mattel reclassified such inbound freight costs from freight and logistics expenses to present all inbound freight costs within product and other costs for the periods and segments presented.

~~Gross Margin~~

Gross margin increased to 51.0% in the third quarter of 2020 from 46.3% in the third quarter of 2019. The increase in gross margin was primarily driven by incremental realized savings from the Structural Simplification and Capital Light programs (the "cost savings programs"), a decrease in royalty expense resulting from lower sales of licensed products, and favorable product mix.

~~Advertising and Promotion Expenses~~

Advertising and promotion expenses primarily consist of: (i) media costs, which primarily include the media, planning, and buying fees for television, print, and online advertisements; (ii) non-media costs, which primarily include commercial and website production, merchandising, and promotional costs; (iii) retail advertising costs, which primarily include consumer direct catalogs, newspaper inserts, fliers, and mailers; and (iv) generic advertising costs, which primarily include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to 6.3% in the third quarter of 2020 from 11.5% in the third quarter of 2019 primarily as a result of a reduction and deferral of 2020 advertising and promotion spend to the fourth quarter to increase support for Mattel's products during the holiday shopping season.

~~Other Selling and Administrative Expenses~~

Other selling and administrative expenses were $345.7 million, or 21.2% of net sales, in the third quarter of 2020, as compared to $366.0 million, or 24.7% of net sales, in the third quarter of 2019. The decrease in other selling and administrative expenses was primarily driven by incremental realized savings from the cost savings programs and lower employee-related costs, due to the further actions taken to streamline Mattel's organizational structure.

~~Interest expense~~

Interest expense was $50.4 million in the third quarter of 2020, as compared to $47.7 million in the third quarter of 2019. The increase in interest expense was due to the higher interest rate associated with the refinancing of both the 2010 Senior Notes due October 2020 and the 2016 Senior Notes due August 2021 with the 2019 Senior Notes due December 2027.

~~Provision for Income Taxes~~

Mattel's provision for income taxes was $22.1 million and $31.4 million for the third quarter of 2020 and 2019, respectively. For the third quarter of 2020, Mattel recognized a net discrete tax expense of $1.7 million, primarily related to an expense for reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. For the three months ended September 30, 2019, Mattel recognized discrete tax expense of $13.5 million related to reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions, offset by a $13.4 million tax benefit related to the reassessment of the future realizability of certain foreign deferred tax assets. As a result of the establishment of a valuation allowance on U.S. deferred tax assets, there was no U.S. tax benefit provided for U.S. losses during the third quarter of 2020 and 2019.

~~Segment Results~~

~~North America Segment~~

The following table provides a summary of Mattel's net sales, segment income, and gross sales by categories, along with supplemental information by brand, for the North America segment for the third quarter of 2020 and 2019:

For the Three Months Ended % Change as
Reported Currency
Exchange Rate
Impact
September 30,
2020 September 30,
2019
(In millions, except percentage information)
Net Sales $ 924.7 $ 821.9 13 % — %
Segment Income 344.4 194.4 77 %
Gross Sales by Categories
Dolls $ 328.6 $ 250.6 31 % — %
Infant, Toddler, and Preschool 255.3 274.6 -7 % — %
Vehicles 189.6 170.8 11 % — %
Action Figures, Building Sets, Games, and Other 218.1 184.4 18 % — %
Gross Sales $ 991.6 $ 880.4 13 % — %
Sales Adjustments (66.9) (58.6)
Net Sales $ 924.7 $ 821.9 13 % — %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands
Barbie $ 297.6 $ 221.2 35 % — %
Hot Wheels 156.5 140.8 11 % — %
Fisher-Price and Thomas & Friends 241.6 250.9 -4 % — %
Other 295.9 267.5 11 % — %
Gross Sales $ 991.6 $ 880.4 13 % — %

Gross sales for the North America segment were $991.6 million in the third quarter of 2020, an increase of $111.2 million, or 13%, as compared to $880.4 million in the third quarter of 2019. The increase in the North America segment gross sales was primarily due to higher sales of Dolls.

~~Of the 31% increase in Dolls gross sales, 30% was due to higher sales of~~ ~~Barbie~~ ~~products, primarily driven by positive brand momentum and POS.~~

~~Of the 7% decrease in Infant, Toddler, and Preschool gross sales, 3% was due to lower sales of~~ ~~Fisher-Price Friends~~ ~~products and 3% was due to lower sales of~~ ~~Fisher-Price~~ ~~and~~ ~~Thomas & Friends~~ ~~products.~~

~~Of the 11% increase in Vehicles gross sales, 9% was due to higher sales of~~ ~~Hot Wheels~~ ~~products and 2% was due to higher sales of~~ ~~CARS~~ ~~products.~~

~~Of the 18% increase in Action Figures, Building Sets, Games, and Other gross sales, 14% was due to initial sales of~~ ~~Star Wars: The Child~~ ~~plush products; 6% was due to higher sales of card game products, including~~ ~~UNO~~;~~6% was due tohigher sales of~~ ~~Jurassic World~~ ~~products; and 2% was due to higher sales of family games products, including~~ ~~Pictionary. This was partially offset by lower sales of~~ ~~Toy Story 4~~ ~~products of 14% following its 2019 theatrical release.~~

Cost of sales increased 1% in the third quarter of 2020, as compared to a 13% increase in net sales, primarily due to higher freight and logistics expenses, partially offset by lower royalty expense. Gross margin in the third quarter of 2020 increased primarily due to incremental realized savings from the cost savings programs and lower royalty expense.

North America segment income was $344.4 million in the third quarter of 2020, as compared to segment income of $194.4 million in the third quarter of 2019; the increase was primarily due to higher gross profit and lower advertising and promotion expenses.

~~International Segment~~

The following table provides a summary of Mattel's net sales, segment income, and gross sales by categories, along with supplemental information by brand, for the International segment for the third quarter of 2020 and 2019:

For the Three Months Ended % Change as
Reported Currency
Exchange Rate
Impact
September 30,
2020 September 30,
2019
(In millions, except percentage information)
Net Sales $ 655.5 $ 607.9 8 % -3 %
Segment Income 183.2 89.2 105 %
Gross Sales by Categories
Dolls $ 308.2 $ 262.2 18 % -4 %
Infant, Toddler, and Preschool 148.7 156.4 -5 % -2 %
Vehicles 179.8 176.2 2 % -4 %
Action Figures, Building Sets, Games, and Other 136.4 127.0 7 % -2 %
Gross Sales $ 773.1 $ 721.7 7 % -3 %
Sales Adjustments (117.5) (113.8)
Net Sales $ 655.5 $ 607.9 8 % -3 %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands
Barbie $ 234.6 $ 191.6 22 % -4 %
Hot Wheels 156.3 152.5 3 % -4 %
Fisher-Price and Thomas & Friends 146.1 145.4 — % -3 %
Other 236.1 232.1 2 % -2 %
Gross Sales $ 773.1 $ 721.7 7 % -3 %

Gross sales for the International segment were $773.1 million in the third quarter of 2020, an increase of $51.4 million, or 7%, as compared to $721.7 million in the third quarter of 2019, with an unfavorable impact from changes in currency exchange rates of 3 percentage points. The increase in the International segment gross sales was primarily due to higher sales of Dolls.

~~Of the 18% increase in Dolls gross sales, 17% was due to higher sales of~~ ~~Barbie~~ ~~products, primarily driven by positive brand momentum and POS.~~

~~Of the 5% decrease in Infant, Toddler, and Preschool gross sales, 3% was due to lower sales of~~ ~~Fisher-Price Friends~~ ~~products, primarily driven by the exiting of certain licensing partnerships.~~

~~Of the 2% increase in Vehicles gross sales, 2% was due to higher sales of~~ ~~Hot Wheels~~ ~~products.~~

~~Of the 7% increase in Action Figures, Building Sets, Games, and Other gross sales; 7% was due to higher sales of card game products, including~~ ~~UNO; 7% was due to higher sales offamily games products, including~~ ~~Pictionary~~ ~~and~~ ~~Scrabble~~;~~and 6% was due tohigher sales of~~ ~~Jurassic World~~ ~~products. This was partially offset by lower sales of~~ ~~Toy Story 4~~ ~~products of 17% following its 2019 theatrical release.~~

Cost of sales decreased 3% in the third quarter of 2020, as compared to an 8% increase in net sales, primarily due to lower royalty expense. Gross margin in the third quarter of 2020 increased primarily due to incremental realized savings from the cost savings programs and lower royalty expense.

International segment income was $183.2 million in the third quarter of 2020, as compared to segment income of $89.2 million in the third quarter of 2019; the increase was primarily due to higher gross profit and lower advertising and promotion expenses.

~~American Girl Segment~~

The following table provides a summary of Mattel's net sales, segment loss, and gross sales by categories, along with supplemental information by brand, for the American Girl segment for the third quarter of 2020 and 2019:

For the Three Months Ended % Change as
Reported Currency
Exchange Rate
Impact
September 30,
2020 September 30,
2019
(In millions, except percentage information)
Net Sales $ 51.4 $ 51.8 -1 % — %
Segment Loss (10.3) (11.1) -7 %
American Girl Segment
Gross Sales $ 53.7 $ 54.8 -2 % — %
Sales Adjustments (2.3) (3.0)
Net Sales $ 51.4 $ 51.8 -1 % — %

~~Gross sales for the American Girl segment were $53.7 million in the third quarter of 2020, a decrease of $1.1 million, or 2%, as compared to $54.8 million in the third quarter of 2019. The decrease in~~ ~~American Girl~~ gross sales was primarily due to lower sales in proprietary retail channels, which were negatively impacted by retail disruptions due to COVID-19, and the impact of permanent closure of certain retail stores, substantially offset by higher direct-to-consumer channel sales, which doubled during the third quarter of 2020.

Cost of sales increased 15% in the third quarter of 2020, as compared to a 1% decrease in net sales, primarily due to higher product and other costs and higher freight and logistics expenses. Gross margin in the third quarter of 2020 decreased primarily due to increased freight and logistics expenses due to higher direct-to-consumer channel sales, partially offset by incremental realized savings from cost savings programs.

American Girl segment loss was $10.3 million in the third quarter of 2020, as compared to segment loss of $11.1 million in the third quarter of 2019. This improvement was primarily driven by lower selling and administrative expense, and advertising and promotion expenses, partially offset by lower gross profit.

~~Results of Operations—First Nine Months~~

~~Consolidated Results~~

Net sales for the first nine months of 2020 were $2.96 billion, a 2% decrease, as compared to $3.03 billion for the first nine months of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point. Net loss for the first nine months of 2020 was $3.9 million, or $0.01 per share, as compared to a net loss of $213.7 million, or $0.62 per share, in the first nine months of 2019. The lower net loss was due to higher gross profit, driven by incremental realized savings from the cost savings programs, and the absence of the impact of the inclined sleeper product recalls of approximately $34 million.

~~The following table provides a summary of Mattel's consolidated results for the first nine months of 2020 and 2019:~~

For the Nine Months Ended Year/Year Change
September 30, 2020 September 30, 2019
Amount % of Net
Sales Amount % of Net
Sales % Basis Points
of Net Sales
(In millions, except percentage and basis point information)
Net sales $ 2,957.9 100.0 % $ 3,030.9 100.0 % -2 % —
Gross profit $ 1,408.4 47.6 % $ 1,267.6 41.8 % 11 % 580.0
Advertising and promotion expenses 239.0 8.1 % 324.3 10.7 % -26 % (260.0)
Other selling and administrative expenses 981.2 33.2 % 971.6 32.1 % 1 % 110.0
Operating income (loss) 188.2 6.4 % (28.3) -0.9 % n/m 730.0
Interest expense 149.0 5.0 % 140.9 4.6 % 6 % 40.0
Interest (income) (3.6) -0.1 % (4.6) -0.2 % -23 % 10.0
Other non-operating (income) expense, net (0.1) 2.9
Income (loss) before income taxes 42.9 1.5 % (167.5) -5.5 % n/m 700.0
Provision for income taxes 46.8 46.2
Net loss $ (3.9) -0.1 % $ (213.7) -7.1 % -98 % 700.0

~~Sales~~

Net sales for the first nine months of 2020 were $2.96 billion, a decrease of $73.0 million or 2%, as compared to $3.03 billion for the first nine months of 2019, with an unfavorable impact from changes in currency exchange rates of 1 percentage point.

~~The following table provides a summary of Mattel's consolidated gross sales by categories, along with supplemental information by brand, for the first nine months of 2020 and 2019:~~

For the Nine Months Ended % Change as
Reported Currency
Exchange Rate
Impact
September 30,
2020 September 30,
2019
(In millions, except percentage information)
Gross Sales by Categories
Dolls $ 1,177.4 $ 1,093.9 8 % -2 %
Infant, Toddler, and Preschool 744.2 876.6 -15 % -1 %
Vehicles 713.7 744.4 -4 % -2 %
Action Figures, Building Sets, Games, and Other 667.6 684.4 -2 % -1 %
Gross Sales $ 3,302.9 $ 3,399.3 -3 % -2 %
Sales Adjustments (345.0) (368.4)
Net Sales $ 2,957.9 $ 3,030.9 -2 % -1 %
Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands
Barbie $ 879.0 $ 762.8 15 % -2 %
Hot Wheels 607.9 619.0 -2 % -3 %
Fisher-Price and Thomas & Friends 692.7 791.1 -12 % -1 %
Other 1,123.4 1,226.3 -8 % -1 %
Gross Sales $ 3,302.9 $ 3,399.3 -3 % -2 %

Gross sales were $3.30 billion in the first nine months of 2020, a decrease of $96.4 million or 3%, as compared to $3.40 billion in the first nine months of 2019, with an unfavorable impact from changes in currency exchange rates of 2 percentage points. The decrease in gross sales for the first nine months of 2020 was primarily due to lower sales of Infant, Toddler, and Preschool.

~~Of the 8% increase in Dolls gross sales, 11% was due to higher sales of~~ ~~Barbie~~ ~~products, primarily driven by positive brand momentum and POS. This was partially offset by lower sales of~~ ~~American Girl~~ ~~products of 1%, lower sales of~~ ~~Enchantimals~~ ~~products of 1%, and lower sales of~~ ~~Polly Pocket~~ ~~products of 1%.~~

~~Of the 15% decrease in Infant, Toddler, and Preschool gross sales, 11% was due to lower sales of~~ ~~Fisher-Price~~ ~~and~~ ~~Thomas & Friends~~ ~~products and 4% was due to lower sales of~~ ~~Fisher-Price Friends~~ ~~products.~~

~~Of the 4% decrease in Vehicles gross sales, 2% was due to lower sales of~~ ~~CARS~~ ~~products following its movie launch in a prior year and 1% was due to lower sales of~~ ~~Hot Wheels~~ ~~products.~~

~~Of the 2% decrease in Action Figures, Building Sets, Games, and Other gross sales, 14% was due to lower sales of~~ ~~Toy Story 4~~ ~~products following its 2019 theatrical release, partially offset by initial sales of~~ ~~Star Wars: The Child~~ ~~plush products of 6% and higher sales of card games products, including~~ ~~UNO, of 6%~~.

~~Cost of Sales~~

Cost of sales as a percentage of net sales was 52.4% in the first nine months of 2020, as compared to 58.2% in the first nine months of 2019. Cost of sales decreased by $213.8 million, or 12%, to $1.55 billion in the first nine months of 2020 from $1.76 billion in the first nine months of 2019, as compared to a 2% decrease in net sales. Within cost of sales, product and other costs decreased by $160.8 million, or 11%, to $1.27 billion in the first nine months of 2020 from $1.43 billion in the first nine months of 2019; freight and logistics expenses decreased by $4.9 million, or 3%, to $170.2$57.4 million in the first ~~nine months~~quarter of ~~2020~~2021 from ~~$175.1~~$45.8 million in the first ~~nine months~~quarter of ~~2019;~~2020; and royalty expense ~~decreased~~increased by ~~$48.0~~$4.3 million, or ~~30%~~18%, to ~~$110.3~~$27.8 million in the first ~~nine months~~quarter of ~~2020~~2021 from ~~$158.4~~$23.5 million in the first ~~nine months~~quarter of ~~2019.~~2020. Within cost of sales, certain inbound freight costs were previously classified as freight and logistics costs. Mattel reclassified such inbound freight costs from freight and logistics expenses to present all inbound freight costs within product and other costs for the periods and segments presented.

Gross Margin

Gross margin increased to ~~47.6%~~46.8% in the first ~~nine months~~quarter of ~~2020~~2021 from ~~41.8%~~43.0% in the first ~~nine months~~quarter of ~~2019.~~2020. The increase in gross margin was primarily driven by the favorable impact of fixed cost absorption and incremental realized savings from the cost savings programs, ~~a decrease in royalty expense resulting from lower sales of licensed products, and the absence of the inclined sleeper product recalls of approximately $27 million,~~ partially offset by ~~unfavorable product mix.~~input cost inflation due to higher raw material costs.

Advertising and Promotion Expenses

Advertising and promotion expenses primarily consist of: (i) media costs, which ~~primarily~~ include the media, planning, and buying fees for television, print, and online ~~advertisements;~~advertisements, (ii) non-media costs, which ~~primarily~~ include commercial and website production, merchandising, and promotional ~~costs;~~costs, (iii) retail advertising costs, which ~~primarily~~ include consumer direct catalogs, newspaper inserts, fliers, and ~~mailers;~~mailers and (iv) generic advertising costs, which ~~primarily~~ include trade show costs. Advertising and promotion expenses as a percentage of net sales decreased to ~~8.1%~~8.5% in the first ~~nine months~~quarter of ~~2020~~2021 from ~~10.7%~~12.8% in the first ~~nine months~~quarter of ~~2019~~2020, primarily as a result of a ~~reduction and deferral of 2020~~slight decrease in advertising and promotion ~~spend~~expense as compared to ~~the fourth quarter to~~a 47% increase ~~support for Mattel's products during the holiday shopping season.~~in net sales.

Other Selling and Administrative Expenses

Other selling and administrative expenses were ~~$981.2~~$303.9 million, or ~~33.2%~~34.8% of net sales, in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to ~~$971.6~~$328.7 million, or ~~32.1%~~55.3% of net sales, in the first ~~nine months~~quarter of ~~2019.~~2020. The ~~increase~~decrease in other selling and administrative expenses was primarily driven by ~~higher incentive compensation expense, partially offset by~~a $15.8 million gain on sale of long-lived assets and incremental realized savings from the cost savings ~~programs.~~programs, partially offset by higher employee compensation costs.

Interest ~~Expense~~expense

Interest expense was ~~$149.0~~$130.5 million infor the first ~~nine months~~quarter of ~~2020,~~2021, as compared to ~~$140.9~~$49.0 million infor the first ~~nine months~~quarter of ~~2019.~~2020. The increase in interest expense was due to a loss on extinguishment of $83.2 million as a result of the ~~higher interest rate associated with~~partial redemption of the ~~refinancing of both the 2010 Senior Notes due October 2020 and the 2016 Senior Notes due August 2021 with the 2019~~2017/2018 Senior Notes due December ~~2027.~~2025 in the first quarter of 2021.

Provision for Income Taxes

Mattel's provision for income taxes was ~~$46.8~~$20.3 million and ~~$46.2~~$11.9 million for the first ~~nine months~~quarter of 2021 and 2020, ~~and 2019,~~ respectively. ~~For the first nine months of 2020,~~ Mattel recognized a net discrete tax expense of ~~$11.4~~$7.3 million and $6.4 million for the first quarter of 2021 and 2020, respectively, primarily related to ~~an expense for reassessments of prior years' tax liabilities and~~ income taxes recorded on a discrete basis in various jurisdictions. During the first nine months of 2019, Mattel recognized a discrete tax benefit of $13.4 million related to the reassessment of the future realizability of certain foreign deferred tax assets, offset by discrete taxjurisdictions and an expense ~~of $12.3 million related to~~for reassessments of prior years' tax ~~liabilities and income taxes recorded on a discrete basis in various jurisdictions.~~liabilities. As a result of the establishment of a valuation allowance on U.S. deferred tax assets, there was no U.S. tax benefit provided for U.S. losses during the first ~~nine months~~quarter of 2021 and 2020.

Mattel recorded a valuation allowance against certain domestic and foreign deferred tax assets as of both December 31, 2020 and ~~2019.~~March 31, 2021. 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 realized. Mattel maintains a valuation allowance on its deferred tax assets until there is sufficient evidence to support the release of all or some portion of these allowances. Given Mattel's improved earnings for the year ended December 31, 2020 and quarter ended March 31, 2021, and if, Mattel's earnings continue to improve in the future, Mattel believes that there is a reasonable possibility that in the near term, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance related to certain foreign jurisdictions will no longer be needed. Release of the valuation allowance would result in the recognition of a portion of these deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount, if any, of the valuation allowance release are subject to change depending on the level of earnings that Mattel is able to achieve in the tax jurisdictions in which a valuation allowance has been recorded.

4030

Segment Results

North America Segment

The following table provides a summary of Mattel's net sales, segment income, and gross ~~sales~~billings by categories, along with supplemental information by brand, for the North America segment for the first ~~nine months~~quarter of ~~2020~~2021 and ~~2019:~~2020:


		For the Nine Months Ended				% Change as Reported		Currency Exchange Rate Impact				For the Three Months Ended						% Change as Reported				Currency Exchange Rate Impact
		September 30, 2020		September 30, 2019						March 31, 2021		March 31, 2020		% Change as Reported
		(In millions, except percentage information)								(In millions, except percentage information)
Net Sales	Net Sales	$	1,645.2	$	1,586.2	4	%	—	%		Net Sales	$	479.7			$	287.6			67	%			1	%
Segment Income	Segment Income	$	430.4	$	202.9	112	%				Segment Income	123.4		14.0				782	%

Gross Sales by Categories
Gross Billings by Categories											Gross Billings by Categories
Dolls	Dolls	$	523.6	$	424.2	23	%	—	%		Dolls	$	176.2	$	73.9			138	%			—	%
Infant, Toddler, and Preschool	Infant, Toddler, and Preschool	464.3		525.3		-12	%	—	%		Infant, Toddler, and Preschool	108.6		76.6				42	%			1	%
Vehicles	Vehicles	356.2		344.3		3	%	—	%		Vehicles	109.8		88.7				24	%			1	%
Action Figures, Building Sets, Games, and Other	Action Figures, Building Sets, Games, and Other	414.8		403.4		3	%	—	%		Action Figures, Building Sets, Games, and Other	117.2		66.5				76	%			1	%
Gross Sales		$	1,758.9	$	1,697.2	4	%	—	%
Gross Billings											Gross Billings	$	511.8	$	305.8			67	%			—	%
Sales Adjustments	Sales Adjustments	(113.8)		(111.0)							Sales Adjustments	(32.1)		(18.2)
Net Sales	Net Sales	$	1,645.2	$	1,586.2	4	%	—	%		Net Sales	$	479.7	$	287.6			67	%			1	%

Supplemental Gross Billings Disclosure											Supplemental Gross Billings Disclosure

Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands
Gross Billings by Top 3 Power Brands											Gross Billings by Top 3 Power Brands
Barbie	Barbie	$	477.7	$	369.0	29	%	-1	%		Barbie	$	156.9	$	67.8			132	%			1	%
Hot Wheels	Hot Wheels	296.8		276.4		7	%	—	%		Hot Wheels	92.7		74.1				25	%			—	%
Fisher-Price and Thomas & Friends	Fisher-Price and Thomas & Friends	423.2		472.1		-10	%	—	%		Fisher-Price and Thomas & Friends	100.9		69.9				44	%			—	%
Other	Other	561.2		579.7		-3	%	—	%		Other	161.3		94.0				72	%			1	%
Gross Sales		$	1,758.9	$	1,697.2	4	%	—	%
Gross Billings											Gross Billings	$	511.8	$	305.8			67	%			—	%

Gross ~~sales~~billings for the North America segment were ~~$1.76 billion~~$511.8 in the first ~~nine months~~quarter of ~~2020,~~2021, an increase of ~~$61.7~~$206.0 million, or 4%67%, as compared to ~~$1.70 billion~~$305.8 million in the first ~~nine months~~quarter of ~~2019.~~2020. The increase in the North America segment gross ~~sales~~billings was primarily ~~due to~~driven by higher ~~sales~~billings of Dolls ~~partially offset by lower sales of Infant, Toddler,~~ and ~~Preschool.~~Action Figures, Building Sets, Games, and Other.

~~Of the 23% increase in~~ Dolls gross ~~sales, 25%~~billings increased 138%, of which 120% was due to higher ~~sales~~billings of Barbie products, primarily driven by positive brand momentum and POS, and 2%10% was due to initial ~~sales~~billings of ~~Cave Club~~Spirit products. ~~This was partially offset by lower sales of~~ ~~BTS~~ ~~products of 2%, lower sales of~~ ~~Enchantimals~~ ~~products of 1%, and lower sales of~~ ~~Lil' Gleemerz~~ ~~products of 1%.~~

~~Of the 12% decrease in~~ Infant, Toddler, and Preschool gross ~~sales, 10%~~billings increased 42%, of which 41% was due to ~~lower sales~~increased billings of Fisher-Priceand ~~and~~ Thomas & Friends products, ~~including the impact~~primarily driven by higher billings of ~~lower sales of~~ ~~Imaginext Toy Story 4~~infant and newborn products.

~~Of the 3% increase in~~ Vehicles gross ~~sales, 5%~~billings increased 24%, of which 21% was due to higher ~~sales~~billings of Hot Wheels~~products. This was partially offset by lower sales of~~ ~~CARS~~ ~~products of 1% following its movie launch in a prior year and lower sales of~~ ~~Matchbox~~ products, ~~of 1%.~~primarily driven by positive brand momentum and POS.

~~Of the 3% increase in~~ Action Figures, Building Sets, Games, and Other gross ~~sales, 12% was due to initial sales of~~ ~~Star Wars: The Child~~ ~~plush products and 9% was~~billings increased 76% due to higher ~~sales~~billings from the following products: 16% from initial billings of ~~card games products, including~~Masters of the Universe, 15% from Jurassic World, 13% from plush, 12% from WWE, 10% from MEGA, and 6% from UNO. ~~This~~

Sales adjustments as a percentage of net sales was ~~partially offset by lower sales~~relatively consistent at 6.7% for the first quarter of ~~Toy Story 4~~ ~~products~~2021, as compared to 6.3% for the first quarter of ~~19% following its 2019 theatrical release.~~2020.

Cost of sales ~~decreased 10% during~~increased 47% in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to a 4%67% increase in net sales, primarily ~~driven by lower~~due to higher product and other ~~costs and royalty expense.~~costs. Gross margin in the first ~~nine months~~quarter of ~~2020~~2021 increased primarily due to ~~lower product costs driven by~~the favorable impact of fixed cost absorption and incremental realized savings from the cost savings programs, ~~lower royalty expense, and the absence of the inclined sleeper product recall expense of approximately $26 million in 2019.~~

partially offset by input cost inflation. North America segment income was ~~$430.4~~$123.4 million in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to segment income of ~~$202.9~~$14.0 million in the first ~~nine months~~quarter of ~~2019;~~2020; the improvement was primarily due to higher gross ~~profit and lower advertising and promotion expenses.~~profit.

4131

International Segment

The following table provides a summary of Mattel's net sales, segment income (loss), and gross ~~sales~~billings by categories, along with supplemental information by brand, for the International segment for the first ~~nine months~~quarter of ~~2020~~2021 and ~~2019:~~2020:


		For the Nine Months Ended				% Change as Reported		Currency Exchange Rate Impact				For the Three Months Ended						% Change as Reported				Currency Exchange Rate Impact
		September 30, 2020		September 30, 2019						March 31, 2021		March 31, 2020		% Change as Reported
		(In millions, except percentage information)								(In millions, except percentage information)
Net Sales	Net Sales	$	1,196.0	$	1,315.0	-9	%	-4	%		Net Sales	$	349.4			$	269.4			30	%			3	%
Segment Income		$	139.4	$	61.4	127	%
Segment Income (Loss)											Segment Income (Loss)	35.2		(28.9)				n/m

Gross Sales by Categories
Gross Billings by Categories											Gross Billings by Categories
Dolls	Dolls	$	532.9	$	535.0	—	%	-4	%		Dolls	$	158.7	$	113.9			39	%			1	%
Infant, Toddler, and Preschool	Infant, Toddler, and Preschool	279.9		351.3		-20	%	-3	%		Infant, Toddler, and Preschool	74.6		63.8				17	%			3	%
Vehicles	Vehicles	357.5		400.1		-11	%	-5	%		Vehicles	105.5		96.9				9	%			2	%
Action Figures, Building Sets, Games, and Other	Action Figures, Building Sets, Games, and Other	252.7		281.0		-10	%	-3	%		Action Figures, Building Sets, Games, and Other	82.0		51.5				59	%			6	%
Gross Sales		$	1,423.1	$	1,567.4	-9	%	-4	%
Gross Billings											Gross Billings	$	420.9	$	326.1			29	%			3	%
Sales Adjustments	Sales Adjustments	(227.2)		(252.4)							Sales Adjustments	(71.6)		(56.8)
Net Sales	Net Sales	$	1,196.0	$	1,315.0	-9	%	-4	%		Net Sales	$	349.4	$	269.4			30	%			3	%

Supplemental Gross Sales Disclosure
Gross Sales by Top 3 Power Brands
Supplemental Gross Billings Disclosure											Supplemental Gross Billings Disclosure

Gross Billings by Top 3 Power Brands											Gross Billings by Top 3 Power Brands
Barbie	Barbie	$	401.3	$	393.9	2	%	-4	%		Barbie	$	119.3	$	79.7			50	%			3	%
Hot Wheels	Hot Wheels	311.1		342.6		-9	%	-5	%		Hot Wheels	91.9		84.5				9	%			1	%
Fisher-Price and Thomas & Friends	Fisher-Price and Thomas & Friends	269.5		319.1		-16	%	-4	%		Fisher-Price and Thomas & Friends	70.7		58.8				20	%			2	%
Other	Other	441.2		511.9		-14	%	-4	%		Other	139.0		103.1				35	%			4	%
Gross Sales		$	1,423.1	$	1,567.4	-9	%	-4	%
Gross Billings											Gross Billings	$	420.9	$	326.1			29	%			3	%

n/m - Not Meaningful

Gross ~~sales~~billings for the International segment were ~~$1.42 billion~~$420.9 million in the first ~~nine months~~quarter of ~~2020, a decrease~~2021, an increase of ~~$144.3~~$94.8 million, or 9%29%, as compared to ~~$1.57 billion~~$326.1 million in the first ~~nine months~~quarter of ~~2019,~~2020, with ~~an unfavorable~~a favorable impact from changes in currency exchange rates of 4three percentage points. The ~~decrease~~increase in the International segment gross ~~sales~~billings was primarily due to higher billings of Dolls and Action Figures, Building Sets, Games, and Other.

Dolls gross billings increased 39%, of which 34% was due to ~~lower sales of Infant, Toddler, and Preschool and Vehicles.~~

~~Gross sales of Dolls remained flat year-over-year, with initial sales of~~ ~~Cave Club~~ ~~products of and~~ higher ~~sales~~billings of Barbie products, ~~substantially offset~~primarily driven by ~~lower sales of~~ ~~Polly Pocket~~ ~~products~~positive brand momentum and ~~lower sales of~~ ~~Enchantimals~~ ~~products.~~POS.

~~Of the 20% decrease in~~ Infant, Toddler, and Preschool gross ~~sales, 14%~~billings increased 17%, of which 19% was ~~due to lower sales~~driven by higher billings of Fisher-Priceand ~~and~~ Thomas & Friends ~~products, including the impact of COVID-19, and 5% was due to lower sales of~~ ~~Fisher-Price Friends~~products, primarily driven by ~~the exiting~~higher billings of ~~certain licensing partnerships.~~infant and newborn products. This was partially offset by lower billings of other owned brands products of 2%.

~~Of the 11% decrease in~~ Vehicles gross ~~sales,~~billings increased 9%, of which 8% was due to ~~lower sales~~higher billings of Hot Wheels~~products, including the impact of COVID-19, and 3% was due to lower sales of~~ ~~CARS~~ ~~products following its movie launch in a prior year.~~ products.

~~Of the 10% decrease in~~ Action Figures, Building Sets, Games, and Other gross ~~sales, 18% was~~billings increased 59% due to ~~lower sales~~higher billings from the following products: 15% from Jurassic World, 12% from initial billings of ~~Toy Story 4~~ Masters of the Universe~~products following its 2019 theatrical release, partially offset by higher sales of card games products, including~~, 8% from UNO, of 6% ~~and higher sales of family games products, including~~ ~~Pictionary~~ ~~and~~from ~~Scrabble~~MEGA, and 6% from WWE.

Sales adjustments as a percentage of ~~4%.~~net sales was relatively consistent at 20.5% for the first quarter of 2021, as compared to 21.1% for the first quarter of 2020.

Cost of sales ~~decreased 17%~~increased 19% in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to a ~~9% decrease~~30% increase in net sales, primarily due to ~~lower~~higher product and other ~~costs and royalty expense.~~costs. Gross margin in the first ~~nine months~~quarter of ~~2020~~2021 increased primarily due to ~~lower product costs driven by~~the favorable impact of fixed cost absorption and incremental realized savings from the cost savings programs, ~~and lower royalty expense.~~

partially offset by input cost inflation. International segment income was ~~$139.4~~$35.2 million in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to a segment ~~income~~loss of ~~$61.4~~$28.9 million in the first ~~nine months~~quarter of ~~2019. The increase~~2020; the improvement was primarily due to ~~lower advertising and promotion expenses.~~higher gross profit.

4232

American Girl Segment

The following table provides a summary of Mattel's net sales, segment loss, and gross ~~sales by categories, along with supplemental information by brand,~~billings for the American Girl segment for the first ~~nine months~~quarter of ~~2020~~2021 and ~~2019:~~2020:


		For the Nine Months Ended				% Change as Reported		Currency Exchange Rate Impact				For the Three Months Ended						% Change as Reported				Currency Exchange Rate Impact
		September 30, 2020		September 30, 2019						March 31, 2021		March 31, 2020		% Change as Reported
		(In millions, except percentage information)								(In millions, except percentage information)
Net Sales	Net Sales	$	116.8	$	129.7	-10	%	—	%		Net Sales	$	45.2			$	37.2			22	%			—	%
Segment Loss	Segment Loss	$	(41.6)	$	(41.4)	—	%				Segment Loss	(9.8)		(17.4)				-44	%			—	%

American Girl Segment	American Girl Segment										American Girl Segment
Total Gross Sales		$	120.9	$	134.7	-10	%	—	%
Total Gross Billings											Total Gross Billings	$	46.3	$	38.1			22	%			—	%
Sales Adjustments	Sales Adjustments	(4.1)		(5.0)							Sales Adjustments	(1.1)		(0.9)
Total Net Sales	Total Net Sales	$	116.8	$	129.7	-10	%	—	%		Total Net Sales	$	45.2	$	37.2			22	%			—	%

Gross ~~sales~~billings for the American Girl segment ~~was $120.9~~were $46.3 million in the first ~~nine months~~quarter of ~~2020, a decrease~~2021, an increase of ~~$13.8~~$8.2 million, or ~~10%~~22%, as compared to ~~$134.7~~$38.1 million in the first ~~nine months~~quarter of ~~2019.~~2020. The ~~decrease~~increase in American Girl gross ~~sales~~billings was primarily due to higher direct-to-consumer channel billings, partially offset by lower ~~sales~~billings in proprietary retail ~~channels, which were negatively impacted by retail disruption due to COVID-19,~~channels.

Sales adjustments as a percentage of net sales was consistent at 2.5% for the first quarter of 2021 and ~~the impact of permanent closure of certain retail stores. This was partially offset by higher direct-to-consumer channel sales.~~2020.

Cost of sales ~~remained flat year-over-year,~~increased 21% in the first quarter of 2021, as compared to a ~~10% decrease~~22% increase in net sales, primarily ~~driven by~~due to higher product and other costs and higher freight and logistics ~~expenses, substantially offset by lower product and other costs.~~expenses. Gross margin in the first ~~nine months~~quarter of ~~2020 decreased primarily~~2021 increased slightly due to ~~higher~~incremental realized savings from cost savings programs, substantially offset by increased freight and logistics expenses due to higher direct-to-consumer channel ~~sales, partially offset by lower product costs driven by the incremental realized savings from cost savings programs.~~

sales. American Girl segment loss was ~~$41.6~~$9.8 million in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to segment loss of ~~$41.4~~$17.4 million in the first ~~nine months~~quarter of ~~2019. The decline~~2020. This improvement was primarily driven ~~primarily~~ by higher gross profit and lower ~~net sales, substantially offset by lower other~~ selling and administrative ~~expenses.~~expenses due to the permanent closure of certain retail stores and renegotiated lease terms for certain retail stores.

Cost Savings Programs

Optimizing for Growth (formerly Capital ~~Light Program~~Light)

~~During the first quarter of 2019,~~On February 9, 2021, Mattel announced the ~~commencement of its~~Optimizing for Growth program, a multi-year cost savings program which integrates and expands upon the previously announced Capital Light program (the “Program”). Targeted annual gross cost savings from actions that are expected to ~~optimize Mattel's manufacturing footprint (including~~be completed beginning 2021 through 2023 are $250 million. Of the ~~sale or consolidation~~$250 million in incremental targeted gross cost savings, approximately 50% is expected to benefit Cost of ~~manufacturing facilities), increase~~Sales, 40% to benefit Other Selling and Administrative Expenses, and 10% to benefit Advertising and Promotion Expense. Incremental cash expenditures associated with the ~~productivity~~Program are expected to be approximately $100 to $125 million.

Mattel estimates the cost of ~~its plant infrastructure, and achieve additional efficiencies across its entire supply chain. In~~incremental actions for the Program to be as follows:


Optimizing for Growth - Incremental Actions			Estimate of Cost
Employee severance			$40 to $50 million
Real estate/supply chain optimization and other restructuring costs			$15 to $20 million
Asset impairments and other non-cash charges			$25 to $30 million
Total estimated severance and restructuring costs			$80 to $100 million
Information technology enhancements and other investments			$45 to $55 million
Total estimated incremental charges			$125 to $155 million

Cumulatively, in conjunction with previous actions taken under the Capital Light program, targeted annual gross cost savings for the Program are $325 million by 2023, with total expected cash expenditures of approximately $140 to $165 million, and total non-cash charges of $40 to $45 million.Of the $325 million in targeted gross cost savings, approximately 60% is expected to benefit Cost of Sales, 30% to benefit Other Selling and Administrative Expenses, and 10% to benefit Advertising and Promotion Expense.

In connection with the Program, Mattel discontinued production in 2019 at certain plants located in China, Indonesia, and Mexico. In addition to the discontinued production at the three plants, Mattel will discontinue production at its plant located in Canada in 2021. Mattelhas recorded severance and other restructuring ~~charges~~costs in the following cost and expense categories within the consolidated statements of ~~$11.2 million for the first nine months of 2020. Of the total charges recorded for the first nine months of 2020, $6.4 million was recorded within~~operations:


	For the Three Months Ended
	March 31, 2021		March 31, 2020
	(In millions)
Cost of sales (a)	$	1.9	$	3.1
Other selling and administrative expenses (b)	5.7		2.7
	$	7.6	$	5.8

(a)Severance and other ~~selling and administrative expenses and $4.8 million was~~restructuring costs recorded within cost of sales in the consolidated statements of ~~operations.~~operations are included in segment income (loss) in "Note 22 to the Consolidated Financial Statements—Segment Information."

As of ~~September 30, 2020,~~March 31, 2021, Mattel has recorded cumulative severance and other restructuring charges related to the ~~Capital Light program~~Program of ~~$48.8~~approximately $58 million , which include approximately ~~$14~~$17 million of non-cash charges. Mattel ~~expects to incur total severance and other restructuring charges, excluding non-cash charges, of approximately $38 million related to the Capital Light program.~~

Mattel is currently evaluating other cost saving measures, including the optimization of owned and operated manufacturing facilities and the geographical footprint of co-manufacturing facilities, which may result in incremental cost savings. Mattel realized cumulative cost savings (before severance, restructuring costs, and cost inflation) of approximately ~~$37~~$102 million, primarily within gross profit, ~~for the first nine months~~as of ~~2020 and has achieved approximately $52 million of run-rate savings~~March 31, 2021 in connection with the ~~program.~~Program.

During the three months ended March 31, 2021, in conjunction with the Program, Mattel ~~expects to realize cumulative run-rate cost savings~~completed the sale of ~~approximately $65 million~~a manufacturing plant based in ~~2020~~Mexico, which included land and ~~approximately $72 million by 2021 related to the Capital Light program actions taken through September 30, 2020.~~buildings, resulting in a pre-tax gain of $15.8 million.

Other Cost Savings Actions

During the ~~first nine~~three months ofended March 31, 2020, Mattel recorded severance charges of approximately ~~$18~~$5 million, primarily related to actions taken to further streamline its organizational structure.

In connection with Mattel’s continued efforts to further streamline its organizational structure and restore profitability, on May 4, 2020, Mattel committed to a planned 4% reduction in its non-manufacturing workforce. The timing of this action was accelerated due to the impact of COVID-19. Mattel expects to incur additional severance and restructuring charges of approximately $2 million, consisting solely of cash expenditures for employee termination and severance costs, through the end of 2020. As a result of the reduction in force actions initiated in 2020, Mattel expects to realize approximately $40 million of run-rate cost savings exiting 2020.

Liquidity and Capital Resources

Mattel's primary sources of liquidity are its domestic and foreign cash and equivalents balances, short-term borrowing facilities, including its ~~$1.60~~$1.40 billion senior secured revolving credit facilities, and access to capital markets to fund its operations and obligations. Such obligations may include investing and financing activities such as capital expenditures and debt service. Of Mattel's ~~$452.2~~$615.2 million in cash and equivalents at ~~September 30, 2020,~~March 31, 2021, approximately ~~$128~~$588.3 million was held by foreign subsidiaries.

Cash flows from operating activities could be negatively impacted by decreased demand for Mattel's products, which could result from factors such as, but not limited to, adverse economic conditions and changes in public and consumer preferences, or by increased costs associated with manufacturing and distribution of products or shortages in raw materials or component parts. Additionally, Mattel's ability to issue long-term debt and obtain seasonal financing could be adversely affected by factors such as, but not limited to, global economic crises and tight credit environments, an inability to ~~meet~~comply with its debt ~~covenant requirements~~covenants and its senior secured revolving credit facilities covenants, or deterioration of Mattel's credit ratings. As discussed ~~above~~ under Part I, Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Update" of this Quarterly Report on Form 10-Q, many of the aforementioned factors have been and may be adversely affected by COVID-19. However, based on Mattel’s current business plan and factors known to date, including the currently known impacts of COVID-19, it is expected that existing cash and equivalents, cash flows from operations, availability under the senior secured credit revolving facilities, and access to capital markets, will be sufficient to meet working capital and operating expenditure requirements for the next twelve months. Additionally, Mattel expects to remain in compliance with all of its debt covenants through November 3, 2021. Refer to Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q for further discussion regarding potential impacts of COVID-19 on Mattel’s business.

Current Market Conditions

Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates.

Consistent with prior periods, Mattel intends to utilize its senior secured revolving credit facilities to meet its short-term liquidity needs. At ~~September 30, 2020,~~March 31, 2021, Mattel had ~~$400.0 million in~~no outstanding borrowings under the senior secured revolving credit facilities and approximately ~~$13~~$11 million in outstanding letters of credit under the senior secured revolving credit facilities. During the first nine months of 2020, Mattel drew down $400.0 million under the senior secured revolving credit facilities as Mattel accelerated the timing of its borrowings under the senior secured revolving credit facilities in anticipation of its projected seasonal working capital requirements and in light of uncertainties surrounding the impact of COVID-19. During October 2020, Mattel repaid $323.7 million under the senior secured revolving credit facilities, resulting in a total outstanding balance of $76.3 million as of October 21, 2020.

Market conditions could affect certain terms of other debt instruments that Mattel enters into from time to time.

Mattel monitors the third-party depository institutions that hold Mattel's cash and equivalents. Mattel's emphasis is primarily on safety and liquidity of principal, and secondarily on maximizing the yield on those funds. Mattel diversifies its cash and equivalents among counterparties and securities to minimize risks.

Mattel is subject to credit risks relating to the ability of its counterparties in hedging transactions to meet their contractual payment obligations. The risks related to creditworthiness and nonperformance have been considered in the fair value measurements of Mattel's foreign currency forward exchange contracts. Mattel closely monitors its counterparties and takes action, as necessary, to manage its counterparty credit risk.

Mattel expects that some of its customers and vendors may experience difficulty in obtaining the liquidity required to buy inventory or raw ~~materials, especially in light of the global economic uncertainty caused by COVID-19.~~materials. Mattel monitors its customers' financial condition and their liquidity in order to mitigate Mattel's accounts receivable ~~collectibility~~collectability risks, and customer terms and credit limits are adjusted, if necessary. Additionally, Mattel uses a variety of financial arrangements to ensure ~~collectibility~~collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, factoring, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

Mattel sponsors defined benefit pension plans and postretirement benefit plans for its employees. Actual returns below the expected rate of return, ~~including as a result of the market disruptions caused by COVID-19,~~ along with changes in interest rates that affect the measurement of the liability, would impact the amount and timing of Mattel's future contributions to these plans.

Mattel's business has been impacted by COVID-19. Refer to Part I, Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Update" ~~and Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q~~ for further discussion regarding the impact and potential impacts of COVID-19 on Mattel’s business.

Cash Flow Activities

Cash flows used for operating activities were ~~$434.0~~$41.2 million in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to ~~$513.7~~$174.5 million in the first ~~nine months~~quarter of ~~2019.~~2020. The decrease in cash flows used for operating activities was primarily due to lower net loss, excluding the impact of non-cash ~~charges, partially offset by higher seasonal working capital usage.~~charges.

Cash flows ~~used for~~provided by investing activities were ~~$115.2~~$6.3 million in the first ~~nine months~~quarter of ~~2020,~~2021, as compared to ~~$78.4~~cash flows used by investing activities of $81.2 million in the first ~~nine months~~quarter of ~~2019.~~2020. The ~~increase~~change in cash flows ~~used for~~from investing activities was primarily driven by ~~higher~~proceeds from the disposal of assets and a business of $39.2 million in the first quarter of 2021 and lower payments ~~made for~~on foreign currency forward exchange ~~contracts and higher capital spending~~contracts.

Cash flows used for financing activities were $105.7 million in the first ~~nine months~~quarter of ~~2020.~~

~~Cash~~2021, as compared to cash flows provided by financing activities ~~were $393.4~~of $149.3 million in the first ~~nine months~~quarter of ~~2020, as compared to $218.3 million in the first nine months of 2019.~~2020. The ~~increase~~change in cash flows ~~provided~~ from financing activities was driven primarily ~~driven~~ by ~~higher net~~the partial redemption of the 2017/2018 Senior Notes due December 2025 in the first quarter of 2021 and proceeds from short-term borrowings of $150.0 million in the first ~~nine months~~quarter of 2020.

Seasonal Financing

See Part I, Item 1 "Financial Statements—Note 8 to the Consolidated Financial Statements—Seasonal Financing" of this Quarterly Report on Form 10-Q.

Financial Position

Mattel's cash and equivalents decreased ~~$177.9~~$146.9 million to ~~$452.2~~$615.2 million at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$630.0~~$762.2 million at December 31, ~~2019, primarily~~2020, due to seasonal working capital usage, the partial redemption of the 2017/2018 Senior Notes due December 2025, and capital ~~expenditures,~~expenditures. The decreases were partially offset by improved results of operations, excluding the impact of non-cash charges and ~~net~~ proceeds from ~~short-term borrowings~~the disposal of assets and a business during the first ~~nine months~~quarter of ~~2020.~~2021. Mattel's cash and equivalents increased ~~$233.9~~$115.8 million to ~~$452.2~~$615.2 million at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$218.3~~$499.4 million at ~~September 30, 2019,~~March 31, 2020, primarily due to ~~lower net loss, excluding~~cash flows from operating activities in the ~~impact of non-cash charges, and higher net proceeds from short-term borrowings during the first nine~~trailing twelve months, ~~of 2020,~~ partially offset by ~~higher seasonal working~~ capital ~~usage~~expenditures, the partial redemption of the 2017/2018 Senior Notes due December 2025 in the first quarter of 2021 and ~~higher payments made for foreign currency forward exchange contracts.~~repayment of short-term borrowings of $150.0 million outstanding as of March 31, 2020.

Accounts receivable ~~increased $389.8~~decreased $353.3 million to ~~$1.33 billion~~$680.6 million at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$936.4~~$1.03 billion at December 31, 2020, primarily due to seasonal declines as year-end receivables are collected. Accounts receivable increased $152.1 million to $680.6 million at March 31, 2021, as compared to $528.5 million at March 31, 2020, primarily due to higher net sales in the first quarter of 2021. Net sales in the first quarter of 2020 were negatively impacted by COVID-19.

Inventory increased $95.2 million to $609.8 million at March 31, 2021, as compared to $514.7 million at December 31, ~~2019, primarily due to higher sales in the third quarter of~~ 2020, and the seasonality of Mattel's business, partially offset by the impact of foreign exchange, due to the strengthening of the U.S. dollar. Accounts receivable increased $34.9 million to $1.33 billion at September 30, 2020, as compared to $1.29 billion at September 30, 2019, primarily due to higher sales in the third quarter of 2020, partially offset by improved collections and lower days of sales outstanding.

~~Inventory increased $168.1 million to $663.6 million at September 30, 2020, as compared to $495.5 million at December 31, 2019,~~ primarily due to seasonal inventory ~~build, partially offset by~~build. Inventory increased $49.2 million to $609.8 million at March 31, 2021, as compared to $560.6 million at March 31, 2020, due to increased production for higher anticipated sales in the second quarter of 2021 and the impact of foreign exchange, due to the strengthening of the U.S. dollar. Inventory decreased $37.9 million to $663.6 million at September 30, 2020, as compared to $701.6 million at September 30, 2019, primarily due to higher than anticipated sales as demand increased during the third quarter of 2020.exchange.

Accounts payable and accrued liabilities ~~remained relatively flat at $1.24~~decreased $275.7 million to $1.05 billion at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$1.23~~$1.33 billion at December 31, ~~2019.~~2020 due to seasonal declines in expenditure levels. Accounts payable and accrued liabilities ~~remained relatively flat at $1.24~~increased $87.9 million to $1.05 billion at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$1.23 billion~~$963.7 million at ~~September 30, 2019.~~

March 31, 2020 due to increased payables associated with higher inventory production levels.

Mattel had ~~$400.0~~$0.9 million, $150.0 million, and ~~$230.0~~$1.0 million of short-term borrowings outstanding at ~~September 30,~~March 31, 2021, March 31, 2020, and ~~September 30, 2019, respectively. At~~ December 31, ~~2019,~~2020 respectively. Mattel ~~had no short-term~~accelerated the timing of its borrowings ~~outstanding.~~under the senior secured revolving credit facilities during the first quarter of 2020 in anticipation of its projected seasonal working capital requirements and in light of uncertainties surrounding the impact of COVID-19.

A summary of Mattel's capitalization is as follows:


		September 30, 2020				September 30, 2019				December 31, 2019					March 31, 2021				March 31, 2020				December 31, 2020
		(In millions, except percentage information)													(In millions, except percentage information)
Cash and equivalents	Cash and equivalents	$	452.2			$	218.3			$	630.0			Cash and equivalents	$	615.2			$	499.4			$	762.2

Short-term borrowings	Short-term borrowings	400.0				230.0				—				Short-term borrowings	0.9				150.0				1.0
2010 Senior Notes due October 2020		—				250.0				—
2010 Senior Notes due October 2040	2010 Senior Notes due October 2040	250.0				250.0				250.0				2010 Senior Notes due October 2040	250.0				250.0				250.0
2011 Senior Notes due November 2041	2011 Senior Notes due November 2041	300.0				300.0				300.0				2011 Senior Notes due November 2041	300.0				300.0				300.0
2013 Senior Notes due March 2023	2013 Senior Notes due March 2023	250.0				250.0				250.0				2013 Senior Notes due March 2023	250.0				250.0				250.0
2016 Senior Notes due August 2021		—				350.0				—
2017/2018 Senior Notes due December 2025	2017/2018 Senior Notes due December 2025	1,500.0				1,500.0				1,500.0				2017/2018 Senior Notes due December 2025	275.0				1,500.0				1,500.0
2019 Senior Notes due December 2027	2019 Senior Notes due December 2027	600.0				—				600.0				2019 Senior Notes due December 2027	600.0				600.0				600.0
2021 Senior Notes due April 2026														2021 Senior Notes due April 2026	600.0				—				—
2021 Senior Notes due April 2029														2021 Senior Notes due April 2029	600.0				—				—
Debt issuance costs and debt discount	Debt issuance costs and debt discount	(47.2)				(43.2)				(53.2)				Debt issuance costs and debt discount	(37.3)				(51.1)				(45.3)
Total debt	Total debt	$	3,252.8	89	%	$	3,086.8	87	%	$	2,846.8	85	%	Total debt	2,838.6		86	%	2,998.9		95	%	2,855.7		83	%
Stockholders' equity		404.5		11		463.8		13		491.7		15
Stockholders’ equity														Stockholders’ equity	473.9		14		157.9		5		596.3		17
Total capitalization (debt plus equity)	Total capitalization (debt plus equity)	$	3,657.3	100	%	$	3,550.6	100	%	$	3,338.5	100	%	Total capitalization (debt plus equity)	$	3,312.5	100	%	$	3,156.8	100	%	$	3,452.0	100	%

Total debt was ~~$3.25~~$2.84 billion at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$2.85~~$2.86 billion at December 31, ~~2019. There were no borrowings or repayments~~2020. On March 19, 2021, Mattel used the net proceeds from the issuance of $600.0 million aggregate principal amount of 3.375% Senior Notes due 2026 and $600.0 million aggregate principal amount of 3.750% Senior Notes due 2029, together with cash on ~~long-term debt during the first nine months~~hand, to redeem and retire $1.23 billion in aggregate principal amount of ~~2020. Short-term borrowings were $400.0 million at September 30, 2020.~~Mattel's outstanding 2017/2018 Senior Notes due December 2025 and pay related prepayment premiums and transaction fees and expenses. Total debt was ~~$3.25~~$2.84 billion at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$3.09~~$3.00 billion at ~~September 30, 2019.~~March 31, 2020. The ~~increase~~decrease is primarily due to the repayment of short-term borrowings of ~~$400.0~~$150.0 million outstanding at ~~September 30,~~March 31, 2020. In November 2019, Mattel used the proceeds from the $600.0 million aggregate principal issuance of the 2019 Senior Notes due December 2027 to redeem and retire its $250.0 million of 2010 Senior Notes due October 2020 and $350.0 million of 2016 Senior Notes due August 2021.

Stockholders' equity decreased ~~$87.2~~$122.4 million to ~~$404.5~~$473.9 million at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$491.7~~$596.3 million at December 31, ~~2019,~~2020, primarily due to ~~a decrease in~~ the ~~currency translation adjustments balance within accumulated other comprehensive~~net loss ~~due to~~for the ~~strengthening~~first quarter of ~~the U.S. dollar.~~ 2021. Stockholders' equity ~~decreased $59.2~~increased $316.0 million to ~~$404.5~~$473.9 million at ~~September 30, 2020,~~March 31, 2021, as compared to ~~$463.8~~$157.9 million at ~~September 30, 2019,~~March 31, 2020, primarily due to ~~a decrease in~~net income for the ~~currency translation adjustments balance within accumulated other comprehensive loss due to the strengthening of the U.S. dollar.~~trailing twelve months.

Litigation

See Part I, Item 1 "Financial Statements—Note 21 to the Consolidated Financial Statements—Contingencies" of this Quarterly Report on Form 10-Q.

Application of Critical Accounting Policies and Estimates

Mattel’s critical accounting policies and estimates are included in the ~~2019~~2020 Annual Report on Form 10-K and did not materially change during the first ~~nine~~three months of ~~2020.~~2021.

New Accounting Pronouncements

See Part I, Item 1 "Financial Statements—Note 23 to the Consolidated Financial Statements—New Accounting Pronouncements" of this Quarterly Report on Form 10-Q.

Non-GAAP Financial ~~Measures~~Measure

To supplement the financial results presented in accordance with U.S. GAAP, Mattel presents ~~certain~~a non-GAAP financial ~~measures~~measure within the meaning of Regulation G promulgated by the ~~Securities and Exchange Commission.~~SEC. The non-GAAP financial ~~measures~~measure that Mattel presents ~~include~~is currency exchange rate ~~impact and gross sales.~~impact. Mattel uses ~~these measures~~this measure to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial ~~performance, and each is discussed below.~~performance. Mattel believes that the disclosure of this non-GAAP financial ~~measures~~measure provides useful supplemental information to investors to be able to better evaluate ongoing business performance and certain components of Mattel's results. ~~These measures are~~This measure is not, and should not be viewed as, ~~substitutes~~a substitute for GAAP financial measures and may not be comparable to similarly-titled measures used by other companies.

Currency Exchange Rate Impact

The currency exchange rate impact reflects the portion (expressed as a percentage) of changes in Mattel's reported results that are attributable to fluctuations in currency exchange rates.

For entities reporting in currencies other than the U.S. dollar, Mattel calculates the percentage change of period-over-period results at constant currency exchange rates (established as described below) by translating current period and prior period results using these rates. ~~Mattel~~It then determines the currency exchange rate impact percentage by calculating the difference between the percentage change at such constant currency exchange rates and the percentage change at actual exchange rates.

The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year. They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual foreign exchange rates. Mattel considers whether any changes to the constant currency rates are appropriate at the beginning of each year. The exchange rates used for these constant currency calculations are generally based on prior year actual exchange rates.

Mattel believes that the disclosure of the percentage impact of foreign currency changes is useful supplemental information for investors to be able to gauge Mattel's current business performance and the longer-term strength of its overall business since foreign currency changes could potentially mask underlying sales trends. The disclosure of the percentage impact of foreign exchange allows investors to calculate the impact on a constant currency basis and also enhances their ability to compare financial results from one period to another.

~~Gross Sales~~Key Performance Indicator

Gross ~~sales~~billings represent ~~sales~~amounts invoiced to ~~customers at invoice, excluding the impact of sales adjustments. Net sales, as reported,~~customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross ~~sales~~billings as a ~~measure~~metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel's business. Changes in gross ~~sales~~billings are discussed because, while Mattel records the details of sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally not associated with categories, brands, and individual products, making net sales less meaningful. Because sales adjustments are not allocated to individual products, net sales are only presented on a consolidated and segment basis and not on a categories or brand level.

Since sales adjustments are determined by customer rather than at the categories or brand level, Mattel believes that the disclosure of gross sales by categories and brand is useful supplemental information for investors to be able to assess the performance of its underlying categories and brands (e.g., Dolls, ~~Barbie~~) and also enhances their ability to compare sales trends over time. Refer to Mattel's critical accounting policies and estimates included in the 2019 Annual Report on Form 10-K for further detail regarding sales adjustments.products.

4737

~~A reconciliation from Mattel's consolidated net sales to its consolidated gross sales is as follows:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(In millions, except percentage information) 2020 2019 % Change
as
Reported % Change
in
Constant
Currency 2020 2019 % Change
as
Reported % Change
in
Constant
Currency
Net sales $ 1,631.7 $ 1,481.6 10 % -1 % $ 2,957.9 $ 3,030.9 -2 % -1 %
Sales adjustments 186.7 175.4 345.0 368.4
Gross sales $ 1,818.4 $ 1,656.9 10 % -1 % $ 3,302.9 $ 3,399.3 -3 % -2 %

~~A reconciliation from net sales to gross sales for the North America segment is as follows:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(In millions, except percentage information) 2020 2019 % Change
as
Reported % Change
in
Constant
Currency 2020 2019 % Change
as
Reported % Change
in
Constant
Currency
Net sales $ 924.7 $ 821.9 13 % — % $ 1,645.2 $ 1,586.2 4 % — %
Sales adjustments 66.9 58.6 113.8 111.0
Gross sales $ 991.6 $ 880.4 13 % — % $ 1,758.9 $ 1,697.2 4 % — %

~~A reconciliation from net sales to gross sales for the International segment is as follows:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(In millions, except percentage information) 2020 2019 % Change
as
Reported % Change
in
Constant
Currency 2020 2019 % Change
as
Reported % Change
in
Constant
Currency
Net sales $ 655.5 $ 607.9 8 % -3 % $ 1,196.0 $ 1,315.0 -9 % -4 %
Sales adjustments 117.5 113.8 227.2 252.4
Gross sales $ 773.1 $ 721.7 7 % -3 % $ 1,423.1 $ 1,567.4 -9 % -4 %

~~A reconciliation from net sales to gross sales for the American Girl segment is as follows:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
(In millions, except percentage information) 2020 2019 % Change
as
Reported % Change
in
Constant
Currency 2020 2019 % Change
as
Reported % Change
in
Constant
Currency
Net sales $ 51.4 $ 51.8 -1 % — % $ 116.8 $ 129.7 -10 % — %
Sales adjustments 2.3 3.0 4.1 5.0
Gross sales $ 53.7 $ 54.8 -2 % — % $ 120.9 $ 134.7 -10 % — %

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign Currency Exchange Rate Risk

Currency exchange rate fluctuations impact Mattel's results of operations and cash flows. Inventory transactions denominated in the Euro, Mexican peso, Australian dollar, British pound sterling, Canadian ~~dollar, Australian~~ dollar, Russian ruble, and Brazilian realwere the primary transactions that caused foreign currency transaction exposure for Mattel during the first ~~nine months~~quarter of ~~2020.~~2021. Mattel seeks to mitigate its exposure to market risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts primarily to hedge its purchase and sale of inventory and other intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. For those intercompany receivables and payables that are not hedged, the transaction gains or losses are recorded in the consolidated statements of operations in the period in which the exchange rate changes as part of operating income (loss) 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. ~~Net income (loss)~~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 first ~~nine months~~quarter of ~~2020~~2021 were related to its net investments in entities having functional currencies denominated in the Brazilian real, Mexican peso, ~~Russian ruble,~~Euro, and ~~the British pound sterling.~~Turkish lira.

There are numerous factors impacting the amount by which Mattel's financial results are affected by foreign currency translation and transaction gains and losses resulting from changes in currency exchange rates, including, but not limited to, the level of foreign currency forward exchange contracts in place at a given time and the volume of foreign currency-denominated transactions in a given period. However, assuming that such factors were held constant, Mattel estimates that a 1 percent change in the U.S. dollar Trade-Weighted Index would ~~impact~~have impacted Mattel's ~~third~~first quarter net sales by approximately 0.4% and have no impact to Mattel's net ~~income~~loss per share.

United Kingdom Operations

During June 2016, the referendum by British voters to exit the ~~European Union~~EU ("Brexit") adversely impacted global markets and resulted in a sharp decline of the British pound sterling against the U.S. dollar. In February 2017, the British Parliament voted in favor of allowing the British government to begin the formal process of Brexit and discussions with the ~~European Union ("EU")~~EU began in March 2017. On January 29, 2020, the British Parliament approved a withdrawal agreement, and the United Kingdom ("U.K.") officially withdrew from the EU on January 31, 2020 and entered into ~~the transition period. During the~~a transition period that ended on December 31, 2020.

On December 24, 2020, the U.K. ~~will continue to be treated~~and EU agreed upon The EU-UK Trade and Cooperation Agreement. The agreement was provisionally applicable beginning January 1, 2021 and sets new rules and arrangements between the U.K. and EU in areas such as the trade of goods and services, intellectual property, transportation, and more. As a result of the agreement, the U.K. is no longer considered a member of the ~~single market~~EU Single Market and ~~customs union~~Customs Union and exited all EU policies and trade agreements. The transfer of goods between the U.K. and EU is subject to additional inspections and checkpoints causing possible delays in the movement of inventory. Although the agreement has mitigated a portion of the risk that arose due to the U.K.'s withdrawal from the EU, ~~has requested that states with EU trade agreements treat~~ the ~~U.K. as a member state until~~overall impact on Mattel's operations is still being evaluated, including the ~~end~~volatility of transition. The transition period is through December 2020, with an option to extend an additional one to two years, to allow for businesses and individuals to adjust to its changes, during which all EU regulations will continue to apply to the U.K.

~~In the short-term, volatility in~~ the British pound sterling could continue as the U.K. negotiates a new trade deal with the EU. In the longer term, any impact from Brexit on Mattel's U.K. operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations.sterling. Mattel's U.K. operations represented approximately 6%5% of Mattel's consolidated net sales for the ~~first nine~~three months ~~of 2020.~~ended March 31, 2021.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2020,~~March 31, 2021, Mattel’s disclosure controls and procedures were evaluated, with the participation of Mattel’s principal executive officer and principal financial officer, to assess whether they are effective in providing reasonable assurance that information required to be disclosed by Mattel in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Based on this evaluation, Ynon Kreiz, Mattel’s principal executive officer, and Anthony DiSilvestro, Mattel’s principal financial officer, concluded that these disclosure controls and procedures were effective to provide reasonable assurance as of ~~September 30, 2020.~~March 31, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting that occurred during the quarter ended ~~September 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, Mattel’s internal control over financial reporting.

4939

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The content of Part I, Item 1 "Financial Statements—Note 21 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 ~~2019~~2020 Annual Report on Form 10-K, other than the risk factors presented below, the current effects of which are discussed in more detail in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q.In addition, the known and unknown impacts caused by the COVID-19 pandemic and actions taken in response to it by governments, businesses, and individuals, may give rise to or amplify the risk factors disclosed in the 2019 Annual Report on Form 10-K.

Disruptions in Mattel’s manufacturing operations, supply chain, distribution system, retail channels, or other aspects of Mattel’s business due to political instability, civil unrest, or disease could adversely affect Mattel’s business, financial position, sales, and results of operations.

Mattel owns, operates, and manages manufacturing facilities and utilizes third-party manufacturers and suppliers throughout Asia, primarily in China, Indonesia, Malaysia, Thailand, and in Canada and Mexico. The risk of political instability and civil unrest exists in certain of these countries, which could temporarily or permanently damage the manufacturing operations of Mattel or its third-party manufacturers located there. Outbreaks of communicable diseases have also been known to occur in certain of these countries. In the past, outbreaks of avian flu have been significantly concentrated in Asia, particularly in Hong Kong, and in the Guangdong province of China, where many of Mattel’s manufacturing facilities and third-party manufacturers are located. More recently, a strain of coronavirus surfaced in Wuhan, Hubei Province, China, resulting in the global COVID-19 pandemic.This pandemic, and the actions taken by governments, businesses, and individuals in response to it, have resulted in significant global economic disruption, which has adversely affected Mattel’s business, financial position, sales, and results of operations. Supply chain interruptions experienced by Mattel, its suppliers, and its customers have contributed to lower net sales and may continue to cause lower net sales to the extent they remain issues in the future. Other disruptions from public health crises such as these result from, among other things, workers contracting diseases, restrictions on factory openings, restrictions on travel, restrictions on shipping, and the closure of critical infrastructure. The design, development, and manufacture of Mattel’s products could suffer if a significant number of Mattel’s employees or the employees of its third-party manufacturers or their suppliers contract communicable diseases such as these, or if Mattel, Mattel’s third-party manufacturers, or their suppliers are adversely affected by other impacts of such diseases.In addition, the contingency plans Mattel has developed to help mitigate the impact of disruptions in its manufacturing operations, may not prevent its business, financial position, sales, and results of operations from being adversely affected by a significant disruption to its manufacturing operations or suppliers.

Mattel also relies on a global distribution system and retail partners operating in many countries throughout the world. Political instability, civil unrest, or disease in any of these countries disrupt this system, negatively affecting the availability of Mattel’s products. For example, COVID-19 has resulted in the closure of distribution centers and brick-and-mortar retailers throughout the world for both Mattel and its customers, including Mattel's brick-and-mortar American Girl retail stores, which has resulted in reduced sales and made it more difficult for Mattel to generate cash flow from operations. Forced or voluntary closures by retailers, particularly specialty retailers, may negatively affect the long-term viability of those retailers. The loss of these retailers could adversely affect Mattel’s business, financial condition, and results of operations.

Mattel relies extensively on information technology in its operations, and any material failure, inadequacy, interruption, or security breach of that technology can have an adverse effect on its business, financial condition, and results of operations.

Mattel relies extensively on information technology systems across its operations, including for management of its supply chain, sale and delivery of its products and services, reporting its results of operations, collection and storage of consumer data, personal data of customers, employees and other stakeholders, and various other processes and transactions. Many of these systems are managed by third-party service providers. Mattel uses third-party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. A small and growing volume of Mattel’s consumer products and services are web-based, and some are offered in conjunction with business partners or such third-party service providers. Mattel and its business partners and third-party service providers collect, process, store, and transmit consumer data, including personal information, in connection with those products and services. Failure to follow applicable regulations related to those activities, or to prevent or mitigate data loss or other security breaches, including breaches of Mattel’s business partners’ technology and systems, can expose Mattel or its customers to a risk of loss or misuse of such information, which can adversely affect Mattel’s operating results, result in regulatory enforcement, other litigation and potential liability for Mattel, and otherwise harm its business. Mattel’s ability to effectively manage its business and coordinate the production, distribution, and sale of its products and services depends significantly on the reliability and capacity of these systems and third-party service providers.

Mattel has exposure to similar security risks faced by other large companies that have data stored on their information technology systems. As described in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Cybersecurity Update," in July 2020, Mattel discovered that it was the victim of a ransomware attack on its information technology systems that caused data on a number of systems to be encrypted. Mattel contained the attack and, although some business functions were temporarily impacted, Mattel restored its operations. A forensic investigation of the incident has concluded, and no exfiltration of any sensitive business data or retail customer, supplier, consumer, or employee data was identified.

The systems and processes that Mattel has developed to protect personal information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party provider as well as enhancements to the security of Mattel's systems and processes following the July 2020 ransomware attack, do not provide absolute security, and any failure or inadequacy of such systems or processes could have an adverse effect on Mattel's business, financial condition, and results of operations. While Mattel carries cyber and business continuity insurance commensurate with its size and the nature of its operations, there can be no guarantee that costs incurred as a result of cyber events will be covered completely.

If Mattel’s or its third-party service providers' systems fail to operate effectively or are damaged, destroyed, or shut down, or there are problems with transitioning to upgraded or replacement systems, or there are future security breaches in these systems, any of which could occur as a result of natural disasters, software or equipment failures, telecommunications failures, loss or theft of equipment, acts of terrorism, circumvention of security systems, or other cyber-attacks, including denial-of-service attacks, Mattel could experience delays or decreases in product sales and reduced efficiency of its operations. Additionally, any of these types of events could lead to violations of privacy laws, loss of customers, or loss, misappropriation or corruption of confidential information, trade secrets, or data, which could expose Mattel to potential litigation, regulatory actions, sanctions, or other statutory penalties, any or all of which could adversely affect its business, and cause it to incur significant losses and remediation costs.

As a global company, Mattel is subject to a variety of continuously evolving and developing laws and regulations in the U.S. and abroad regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. Significant uncertainty exists as privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. For example, the EU General Data Protection Regulation, which greatly increases the jurisdictional reach of European Union law and became effective in May 2018, added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, and imposes substantial penalties for non-compliance. Mattel’s ongoing compliance with the EU General Data Protection Regulation and other privacy and data protection laws, such as the California Consumer Privacy Act, imposes significant costs and challenges that are likely to increase over time.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Equity Securities

During the ~~third~~first quarter of ~~2020,~~2021, 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 ~~third~~first quarter of ~~2020:~~2021:

Period Total Number of
Shares (or Units)
Purchased (a) Average Price Paid
per Share (or Unit) Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs Maximum Number (or
Approximate Dollar
Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (b)
July 1—31 476,481 $ 11.11 — $ 203,016,273
August 1—31 27,244 11.62 — 203,016,273
September 1—30 24,139 11.48 — 203,016,273
Total 527,864 $ 11.15 — $ 203,016,273


Period	Total Number of Shares (or Units) Purchased (a)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (b)
January 1—31	4,687	$	18.12	—	$	203,016,273
February 1—28	371,505	18.47		—	203,016,273
March 1—31	978	20.27		—	203,016,273
Total	377,170	$	18.47	—	$	203,016,273

____________________________________

(a)The total number of shares purchased ~~relates to 527,864~~represents shares withheld from employees to satisfy minimum tax withholding obligations that ~~occurred~~occur upon ~~vesting~~settlement of ~~restricted stock units.~~equity awards. These shares 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 ~~September 30, 2020,~~March 31, 2021, share repurchase authorizations of $203.0 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.

5240

Item 6. Exhibits.

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Exhibit No.

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

3.0

Restated Certificate of Incorporation of Mattel, Inc.

8-K

001-05647

99.0

May 21, 2007

3.0

Restated Certificate of Incorporation of Mattel, Inc.

8-K

001-05647

99.0

May 21, 2007

3.1

Amended and Restated Bylaws of Mattel, Inc.

8-K

001-05647

3.1

August 28, 2018

3.1

Amended and Restated Bylaws of Mattel, Inc.

8-K

001-05647

3.1

August 28, 2018

4.0

Specimen Stock Certificate with respect to Mattel, Inc.

10-Q

001-05647

4.0

August 3, 2007

4.0

Specimen Stock Certificate with respect to Mattel, Inc.

10-Q

001-05647

4.0

August 3, 2007

4.1

Indenture, dated as of March 19, 2021, by and among the Issuer, the guarantors named therein, and U.S. Bank National Association, as Trustee, related to the Company’s 3.375% Senior Notes due 2026

8-K

001-05647

4.1

March 19, 2021

4.2

Indenture, dated as of March 19, 2021, by and among the Issuer, the guarantors named therein, and U.S. Bank National Association, as Trustee, related to the Company’s 3.750% Senior Notes due 2029

8-K

001-05647

4.2

March 19, 2021

4.3

Form of 3.375% Senior Note due 2026 (included in Exhibit 4.1)

8-K

001-05647

4.3

March 19, 2021

4.4

Form of 3.750% Senior Note due 2029 (included in Exhibit 4.2)

8-K

001-05647

4.4

March 19, 2021

10.1

Fourth Amendment to Syndicated Facility Agreement, dated as of March 19, 2021, by and among the Company, each of the other borrowers and guarantors party thereto, the lenders signatory thereto and Bank of America, N.A., as Administrative Agent, Collateral Agent and Australian Security Trustee

8-K

001-05647

10.1

March 19, 2021

31.0*

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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.INS*

Inline XBRL Instance Document

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation 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 September 30, 2020, formatted in Inline XBRL.

104*

The cover page from Mattel's Quarterly Report on Form 10-Q for the three months ended March 31, 2021, formatted in Inline XBRL.



*			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.

5341

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: ~~November 3, 2020~~April 29, 2021

5442


		Page

	PART I

Item 1.	Financial Statements	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations	5

	Consolidated Statements of Comprehensive ~~Income~~(Loss )	6

	Consolidated Statements of Cash Flows	7

	Consolidated Statements of Stockholders' Equity	8

	Notes to Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3026

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4838

Item 4.	Controls and Procedures	4939

	PART II

Item 1.	Legal Proceedings	5040

Item 1A.	Risk Factors	5040

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5240

Item 3.	Defaults Upon Senior Securities	5240

Item 4.	Mine Safety Disclosures	5240

Item 5.	Other Information	5240

Item 6.	Exhibits	5341

	Signature	5442


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
(In millions, except percentage information)	2020		2019		% Change as Reported		% Change in Constant Currency		2020		2019		% Change as Reported		% Change in Constant Currency
Net sales	$	1,631.7	$	1,481.6	10	%	-1	%	$	2,957.9	$	3,030.9	-2	%	-1	%
Sales adjustments	186.7		175.4						345.0		368.4
Gross sales	$	1,818.4	$	1,656.9	10	%	-1	%	$	3,302.9	$	3,399.3	-3	%	-2	%