Mattel(MAT) - 2023 Q4 - Annual Report

Part I Item 1. Business Mattel is a global toy and family entertainment company focused on IP-driven growth across three segments: North America, International, and American Girl - Mattel's strategy is to grow its IP-driven toy business and expand its entertainment offerings into areas like content, consumer products, and digital experiences[6] - The company's operating segments are North America, International, and American Girl[8] Key Product Categories and Brands | Category | Key Brands | | :--- | :--- | | Dolls | Barbie, American Girl, Disney Princess & Frozen, Monster High, Polly Pocket | | Infant, Toddler, and Preschool | Fisher-Price (Little People, Imaginext), Thomas & Friends | | Vehicles | Hot Wheels, Matchbox, Cars (Disney Pixar) | | Action Figures, Building Sets, Games, and Other | Masters of the Universe, MEGA, UNO, Jurassic World, Minecraft, WWE, Star Wars | - In 2023, Mattel's three largest customers (Walmart, Target, and Amazon) accounted for approximately 44% of worldwide consolidated net sales[17] - As of December 31, 2023, Mattel had approximately 33,000 employees, with 86% located outside the United States[25] Item 1A. Risk Factors Mattel faces risks from changing consumer preferences, intense competition, seasonality, customer concentration, economic downturns, and internal control weaknesses - Business risks include failure to satisfy consumer preferences, high competition, seasonality, and significant customer concentration, with Walmart, Target, and Amazon accounting for 44% of 2023 sales[33][35][45] - Market condition risks include deterioration of global economic conditions, inflation impacting consumer spending, and significant increases in commodity, transportation, or labor costs[53][55][56] - A material weakness was identified in internal control over financial reporting related to IT general controls, specifically user access, segregation of duties, and change monitoring, potentially impairing accurate financial reporting[77][188] - The company faces legal and regulatory risks from cybersecurity threats, evolving data privacy laws (e.g., GDPR, CCPA), and potential product liability claims and recalls[78][81][89] - As of December 31, 2023, Mattel had $2.33 billion of indebtedness, which could affect its ability to raise capital and react to industry changes[94] Item 1B. Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[103] Item 1C. Cybersecurity Mattel manages cybersecurity risks through internal teams and third-party experts, overseen by its CISO and Audit Committee, with no material incidents reported - Mattel has a cybersecurity risk management program that includes internal teams and third-party experts, with oversight from the CISO and the Board's Audit Committee[103][104] - The company has not experienced any cybersecurity threats or incidents to date that have materially affected its business, strategy, or financial condition[103] Item 2. Properties Mattel owns its corporate headquarters and principal manufacturing facilities globally, supplementing with leased spaces for its worldwide operations - Mattel owns its corporate headquarters in El Segundo, CA, and its principal manufacturing facilities are located in Indonesia, Malaysia, Mexico, and Thailand[105] - The company leases office, warehouse, and retail space in over 30 countries to support its global operations[105] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 13 to the Consolidated Financial Statements - Information regarding legal proceedings is detailed in Note 13 to the Consolidated Financial Statements[106] Item 4. Mine Safety Disclosures This item is not applicable to Mattel - Not applicable[106] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Mattel's common stock trades on Nasdaq, with $203.0 million in share repurchases in 2023 and a new $1.00 billion program authorized in 2024 - Mattel's common stock is traded on The Nasdaq Global Select Market under the symbol "MAT"[108] Q4 2023 Share Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 1 - 31 | 1,710,604 | $18.82 | | November 1 - 30 | 3,173,304 | $19.23 | | December 1 - 31 | 3,835 | $18.88 | | Total Q4 | 4,887,743 | $19.08 | - In 2023, Mattel repurchased 10.4 million shares for $203.0 million; a new $1.00 billion share repurchase program was authorized in February 2024[109][110] Cumulative Total Return (2018-2023, $100 Initial Investment) | Year | Mattel, Inc. | S&P 500 | S&P 500 Consumer Discretionary | | :--- | :--- | :--- | :--- | | 2018 | $100.00 | $100.00 | $100.00 | | 2019 | $135.64 | $126.17 | $126.53 | | 2020 | $174.67 | $143.39 | $165.74 | | 2021 | $215.82 | $178.85 | $211.63 | | 2022 | $178.58 | $155.42 | $167.12 | | 2023 | $188.99 | $180.90 | $207.71 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Mattel's 2023 net sales were flat at $5.44 billion, with improved gross margin but decreased operating and net income due to higher SG&A and a one-time tax expense, while cash increased significantly FY 2023 vs. FY 2022 Consolidated Results | Metric | 2023 (in millions) | 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $5,441.2 | $5,434.7 | 0% | | Gross Profit | $2,583.7 | $2,481.4 | +4% | | Gross Margin | 47.5% | 45.7% | +180 bps | | Operating Income | $561.7 | $675.5 | -17% | | Net Income | $214.4 | $393.9 | -46% | FY 2023 Gross Billings by Category (vs. 2022) | Category | 2023 Gross Billings (in millions) | % Change vs 2022 | | :--- | :--- | :--- | | Dolls | $2,394.2 | +15% | | Infant, Toddler, and Preschool | $1,000.8 | -10% | | Vehicles | $1,641.0 | +13% | | Action Figures, Building Sets, Games, and Other | $1,065.8 | -24% | | Total Gross Billings | $6,101.8 | +1% | - The 'Optimizing for Growth' program concluded, achieving approximately $343 million in annualized gross cost savings; a new 'Optimizing for Profitable Growth' program targets an additional $200 million in gross cost savings between 2024 and 2026[118][142][145] - Cash and equivalents increased to $1.26 billion at year-end 2023 from $761.2 million in 2022, driven by operating cash flow of $869.8 million[118][153][158] - The company identified a material weakness in its internal control over financial reporting related to IT general controls, which is a critical accounting consideration[77][188] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Mattel's primary market risk is foreign currency fluctuations, partially hedged by forward contracts, with operational changes noted for Turkey and Argentina - Mattel's primary market risk is foreign currency exchange rate fluctuations, particularly with the Chinese yuan and Euro[181] - The company uses foreign currency forward exchange contracts to hedge inventory transactions; without these hedges, earnings before income taxes would have decreased by approximately $30 million in 2023[181][184] - In Q4 2022, Mattel recognized a $45.4 million loss from cumulative currency translation adjustments due to the substantially completed liquidation of its Argentina subsidiary[186] Item 8. Financial Statements and Supplementary Data This section presents Mattel's audited consolidated financial statements, noting a material weakness in IT general controls, confirmed by the independent auditor's adverse opinion on internal controls but unqualified opinion on financial statements - Management concluded that as of December 31, 2023, internal control over financial reporting was not effective due to a material weakness in IT general controls related to user access and change monitoring[187][188] - The independent auditor, PricewaterhouseCoopers LLP, issued an adverse opinion on the effectiveness of internal control over financial reporting due to the identified material weakness, but an unqualified (fairly presented) opinion on the consolidated financial statements[193] Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $3,122,347 | $2,729,035 | | Total Assets | $6,435,822 | $6,177,661 | | Total Current Liabilities | $1,342,480 | $1,187,748 | | Long-Term Debt | $2,329,986 | $2,325,644 | | Total Liabilities | $4,286,609 | $4,121,392 | | Total Stockholders' Equity | $2,149,213 | $2,056,269 | Consolidated Statement of Operations Summary (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net Sales | $5,441,219 | $5,434,687 | | Gross Profit | $2,583,716 | $2,481,352 | | Operating Income | $561,659 | $675,515 | | Net Income | $214,352 | $393,913 | | Diluted EPS | $0.60 | $1.10 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[339] Item 9A. Controls and Procedures Due to a material weakness in IT general controls, Mattel's disclosure controls were deemed ineffective as of December 31, 2023, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to the material weakness in internal control over financial reporting[341] - Management has a remediation plan underway to address the material weakness, but it is not yet complete[343] Item 9B. Other Information The company reports no other information - None[344] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Mattel - Not applicable[344] Part III Item 10. Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance, including the Code of Conduct, is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the Mattel 2024 Proxy Statement[345] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the "Compensation at Mattel" section of the 2024 Proxy Statement - Required information is incorporated by reference from the Mattel 2024 Proxy Statement[346] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the "Stock Ownership and Reporting" section of the 2024 Proxy Statement - Required information is incorporated by reference from the Mattel 2024 Proxy Statement[347] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the "Corporate Governance at Mattel" section of the 2024 Proxy Statement - Required information is incorporated by reference from the Mattel 2024 Proxy Statement[348] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the "Audit Matters" section of the 2024 Proxy Statement - Required information is incorporated by reference from the Mattel 2024 Proxy Statement[349] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report, including bylaws, debt agreements, and compensation plans - This section lists all financial statements, schedules, and exhibits filed with the 10-K, including debt agreements, compensation plans, and officer certifications[351][353][354] Item 16. Form 10-K Summary The company provides no summary under this item - None[360]