SEC Filing | Mattel, Inc.

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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, 2019



☐	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	90245-5012
(Address of principal executive offices)		(Zip Code)

(310) 252-2000

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report):

NONE

__________________________________________________________

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 25, 2019: 346,715,490 shares

MATTEL, INC. AND SUBSIDIARIES



		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	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	62

	PART II

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 3.	Defaults Upon Senior Securities	63

Item 4.	Mine Safety Disclosures	63

Item 5.	Other Information	63

Item 6.	Exhibits	64

	Signature	65

(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," 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 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. Specific factors that might cause such a difference include, but are not limited to: (i) Mattel's ability to design, develop, produce, manufacture, source, and ship products on a timely and cost-effective basis, as well as interest in and purchase of those products by retail customers and consumers in quantities and at prices that will be sufficient to profitably recover Mattel's costs; (ii) downturns in economic conditions affecting Mattel's markets which can negatively impact retail customers and consumers, and which can result in lower employment levels, lower consumer disposable income and spending, including lower spending on purchases of Mattel's products; (iii) 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; (iv) potential difficulties or delays Mattel may experience in implementing cost savings and efficiency enhancing initiatives; (v) 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; (vi) currency fluctuations, including movements in foreign exchange rates, which can lower Mattel's net revenues and earnings, and significantly impact Mattel's costs; (vii) the concentration of Mattel's customers, potentially increasing the negative impact to Mattel of difficulties experienced by any of Mattel's customers, including the bankruptcy and liquidation of Toys "R" Us, Inc., or changes in their purchasing or selling patterns; (viii) 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; (ix) 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; (x) the increased costs of developing more sophisticated digital and smart technology products, and the corresponding supply chain and design challenges associated with such products; (xi) work disruptions, which may impact Mattel's ability to manufacture or deliver product in a timely and cost-effective manner; (xii) the bankruptcy and liquidation of Toys "R" Us, Inc. or other 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; (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 and the ability to attract and retain talented employees; (xiv) the risk of product recalls or product liability suits and costs associated with product safety regulations; (xv) changes in laws or regulations in the United States and/or in other major markets, such as China, in which Mattel operates, including, without limitation, with respect to taxes, tariffs, trade policies, or product safety, which may increase Mattel's product costs and other costs of doing business, and reduce Mattel's earnings; (xvi) failure to realize the planned benefits from any investments or acquisitions made by Mattel; (xvii) the impact of other market conditions, third party actions or approvals and competition 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; (xviii) changes in financing markets or the inability of Mattel to obtain financing on attractive terms; (xix) the impact of litigation or arbitration decisions or settlement actions; (xx) uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; (xxi) an inability to remediate the material weakness in our internal control over financial reporting or additional material weaknesses or other deficiencies in the future or the failure to maintain an effective system of internal controls; and (xxii) other risks and uncertainties detailed in Part 1, Item 1A "Risk Factors" in Mattel's 2018 Annual Report on Form 10-K/A. 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, 2019			September 30, 2018			December 31, 2018
	(Unaudited; in thousands, except share data)
ASSETS
Current Assets
Cash and equivalents	$	218,298		$	209,150		$	594,481
Accounts receivable, net	1,291,255			1,312,932			970,083
Inventories	701,567			726,012			542,889
Prepaid expenses and other current assets	225,877			287,042			239,747
Total current assets	2,436,997			2,535,136			2,347,200
Noncurrent Assets
Property, plant, and equipment, net	572,269			677,030			657,595
Right-of-use assets, net	306,223			—			—
Goodwill	1,382,588			1,388,883			1,386,424
Other noncurrent assets	829,504			880,796			847,006
Total Assets	$	5,527,581		$	5,481,845		$	5,238,225
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings	$	230,000		$	275,000		$	4,176
Accounts payable	512,491			529,720			537,965
Accrued liabilities	732,262			690,858			704,369
Income taxes payable	48,795			5,813			13,520
Total current liabilities	1,523,548			1,501,391			1,260,030
Noncurrent Liabilities
Long-term debt	2,856,773			2,849,922			2,851,723
Noncurrent lease liabilities	273,906			—			—
Other noncurrent liabilities	419,696			471,510			469,669
Total noncurrent liabilities	3,550,375			3,321,432			3,321,392
Stockholders' Equity
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	1,811,214			1,802,556			1,812,682
Treasury stock at cost: 94.7 million shares, 96.2 million shares, and 96.1 million shares, respectively	(2,321,012		)	(2,356,836		)	(2,354,617		)
Retained earnings	1,402,908			1,606,955			1,616,595
Accumulated other comprehensive loss	(880,821		)	(835,022		)	(859,226		)
Total stockholders' equity	453,658			659,022			656,803
Total Liabilities and Stockholders' Equity	$	5,527,581		$	5,481,845		$	5,238,225

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
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(Unaudited; in thousands, except per share amounts)
Net Sales	$	1,481,557		$	1,437,451		$	3,030,866		$	2,990,529
Cost of sales	795,130			824,395			1,763,265			1,901,440
Gross Profit	686,427			613,056			1,267,601			1,089,089
Advertising and promotion expenses	170,379			165,308			324,333			318,538
Other selling and administrative expenses	365,961			325,874			971,608			1,110,491
Operating Income (Loss)	150,087			121,874			(28,340		)	(339,940		)
Interest expense	47,689			48,156			140,881			132,702
Interest (income)	(821		)	(785		)	(4,625		)	(5,631		)
Other non-operating expense, net	1,264			1,911			2,874			4,366
Income (Loss) Before Income Taxes	101,955			72,592			(167,470		)	(471,377		)
Provision for income taxes	31,359			66,314			46,217			71,561
Net Income (Loss)	$	70,596		$	6,278		$	(213,687	)	$	(542,938	)
Net Income (Loss) Per Common Share - Basic	$	0.20		$	0.02		$	(0.62	)	$	(1.57	)
Weighted average number of common shares	346,698			345,285			346,210			344,774
Net Income (Loss) Per Common Share - Diluted	$	0.20		$	0.02		$	(0.62	)	$	(1.57	)
Weighted average number of common and potential common shares	348,487			345,672			346,210			344,774

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

MATTEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(Unaudited; in thousands)
Net Income (Loss)	$	70,596		$	6,278		$	(213,687	)	$	(542,938	)
Other Comprehensive Loss, Net of Tax
Currency translation adjustments	(46,722		)	(17,132		)	(33,759		)	(80,870		)
Defined benefit pension plan adjustments	883			1,762			1,730			4,447
Net unrealized (losses) gains on available-for-sale security	(1,922		)	424			(1,989		)	(2,365		)
Net unrealized gains on derivative instruments:
Unrealized holding gains	12,996			3,215			22,068			15,548
Amounts reclassified from accumulated other comprehensive loss	(6,394		)	787			(9,645		)	10,004
	6,602			4,002			12,423			25,552
Other Comprehensive Loss, Net of Tax	(41,159		)	(10,944		)	(21,595		)	(53,236		)
Comprehensive Income (Loss)	$	29,437		$	(4,666	)	$	(235,282	)	$	(596,174	)

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
	September 30, 2019			September 30, 2018
	(Unaudited; in thousands)
Cash Flows From Operating Activities
Net loss	$	(213,687	)	$	(542,938	)
Adjustments to reconcile net loss to net cash flows used for operating activities:
Depreciation	156,252			179,617
Amortization	30,162			29,925
Asset impairments	9,344			13,653
Share-based compensation	39,140			36,187
Bad debt expense	2,869			43,617
Inventory obsolescence	56,913			56,586
Indefinite reinvestment assertion and U.S. Tax Act	—			23,833
Deferred income taxes	(13,424		)	2,425
Increase (decrease) from changes in assets and liabilities:
Accounts receivable	(337,530		)	(259,739		)
Inventories	(229,524		)	(210,437		)
Prepaid expenses and other current assets	14,703			1,862
Accounts payable, accrued liabilities, and income taxes payable	(29,026		)	(100,213		)
Other, net	147			(5,830		)
Net cash flows used for operating activities	(513,661		)	(731,452		)
Cash Flows From Investing Activities
Purchases of tools, dies, and molds	(36,715		)	(58,187		)
Purchases of other property, plant, and equipment	(38,962		)	(52,945		)
Payments for foreign currency forward exchange contracts, net	(3,394		)	(10,220		)
Other, net	702			6,712
Net cash flows used for investing activities	(78,369		)	(114,640		)
Cash Flows From Financing Activities
Proceeds from short-term borrowings, net	225,824			275,000
Payments of long-term borrowings	—			(750,000		)
Proceeds from long-term borrowings, net	—			475,550
Other, net	(7,523		)	(11,236		)
Net cash flows provided by (used for) financing activities	218,301			(10,686		)
Effect of Currency Exchange Rate Changes on Cash	(2,454		)	(13,293		)
Decrease in Cash and Equivalents	(376,183		)	(870,071		)
Cash and Equivalents at Beginning of Period	594,481			1,079,221
Cash and Equivalents at End of Period	$	218,298		$	209,150

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, 2018	$	441,369	$	1,812,682		$	(2,354,617	)	$	1,616,595		$	(859,226	)	$	656,803
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		)	1,440,299			(837,934		)	513,277
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		)	1,332,312			(839,662		)	416,097
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	)	$	1,402,908		$	(880,821	)	$	453,658

	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	(Unaudited; in thousands)
Balance, December 31, 2017	$	441,369	$	1,808,391		$	(2,389,877	)	$	2,169,002		$	(781,786	)	$	1,247,099
Cumulative effect of accounting change	—		—			—			(19,148		)	—			(19,148		)
Net loss	—		—			—			(311,253		)	—			(311,253		)
Other comprehensive income, net of tax	—		—			—			—			42,637			42,637
Issuance of treasury stock for restricted stock units vesting	—		(5,675		)	4,027			—			—			(1,648		)
Share-based compensation	—		14,423			—			—			—			14,423
Balance, March 31, 2018	441,369		1,817,139			(2,385,850		)	1,838,601			(739,149		)	972,110
Net loss	—		—			—			(237,963		)	—			(237,963		)
Other comprehensive loss, net of tax	—		—			—			—			(84,929		)	(84,929		)
Issuance of treasury stock for restricted stock units vesting	—		(4,625		)	3,872			—			—			(753		)
Deferred compensation	—		(77		)	201			—			—			124
Share-based compensation	—		7,994			—			—			—			7,994
Balance, June 30, 2018	441,369		1,820,431			(2,381,777		)	1,600,638			(824,078		)	656,583
Net income	—		—			—			6,278			—			6,278
Other comprehensive loss, net of tax	—		—			—			—			(10,944		)	(10,944		)
Issuance of treasury stock for restricted stock units vesting	—		(31,645		)	24,941			—			—			(6,704		)
Share-based compensation	—		13,770			—			—			—			13,770
Dividend equivalents for restricted stock units	—		—			—			39			—			39
Balance, September 30, 2018	$	441,369	$	1,802,556		$	(2,356,836	)	$	1,606,955		$	(835,022	)	$	659,022

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.

Mattel adopted Accounting Standards Update ("ASU") No. 2016-02—Leases (Topic 842) and its related amendments (collectively "the new lease standard") on January 1, 2019 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods, as further discussed in "Note 5 to the Consolidated Financial Statements—Leases."

Mattel modified its reporting structure for revenues and reorganized its regional sales reporting structure in the first quarter of 2019. Prior period amounts have been reclassified to conform to the current period presentation, as further discussed in "Note 23 to the Consolidated Financial Statements—Segment Information."

The December 31, 2018 balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the consolidated financial statements do not include all 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 its 2018 Annual Report on Form 10-K/A.

Revision of Consolidated Financial Statements

In its 2018 Annual Report on Form 10-K/A filed on November 12, 2019 ("2018 Form 10-K/A"), Mattel revised its audited consolidated financial statements as of December 31, 2018 and 2017, and for each of the three years in the period ended December 31, 2018 to correct for misstatements which the Company has determined to be immaterial, both individually and in the aggregate. The revision of these periods was effective upon the filing of the 2018 Form 10-K/A.

Mattel is also revising its unaudited consolidated financial statements for the first and second quarters of 2019 and the first, second, and third quarters of 2018 to correct for prior period misstatements, which Mattel has determined did not, either individually or in the aggregate, materially misstate its previously issued consolidated financial statements. These misstatements related to the improper capitalization of certain advertising costs, the under-accrual of sales adjustments and employee related costs, an increase to the provision for income taxes, and an adjustment for the misclassification between amounts within operating cash flows. Accordingly, the accompanying financial statements as of and for the three and nine months ended September 30, 2018 have been revised to correct for such misstatements. Further information regarding the revision of Mattel's unaudited consolidated financial statements is included in Note 25 - Revision of Quarterly Information.

Mattel will also affect the revision of its unaudited consolidated financial statements for the three months ended March 31, 2019 and the three and six months ended June 30, 2019 with the future filing of its Form 10-Q for the three months ended March 31, 2020 and the three and six months ended June 30, 2020.

All relevant footnotes to the consolidated financial statements in this Form 10-Q have also been revised to reflect the items discussed above.


2.	Accounts Receivable

Accounts receivable are net of allowances for doubtful accounts of $22.4 million, $23.4 million, and $22.0 million as of September 30, 2019, September 30, 2018, and December 31, 2018, respectively.


3.	Inventories

Inventories include the following:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Raw materials and work in process	$	107,562	$	129,088	$	115,966
Finished goods	594,005		596,924		426,923
	$	701,567	$	726,012	$	542,889


4.	Property, Plant, and Equipment

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



	September 30, 2019			September 30, 2018			December 31, 2018
	(In thousands)
Land	$	25,086		$	25,064		$	25,023
Buildings	299,489			298,659			294,227
Machinery and equipment	866,002			873,574			875,308
Software	413,903			387,503			400,488
Tools, dies, and molds	801,064			864,089			831,743
Capital leases	—			23,927			23,927
Leasehold improvements	211,455			239,587			240,636
	2,616,999			2,712,403			2,691,352
Less: accumulated depreciation	(2,044,730		)	(2,035,373		)	(2,033,757		)
	$	572,269		$	677,030		$	657,595


5.	Leases

Mattel adopted the new lease standard on January 1, 2019 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. Mattel elected the package of practical expedients, permitted under the transition guidance within the new lease standard, which among other things, allowed Mattel to continue to account for existing leases based on the historical lease classification. Mattel also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.

Mattel determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Mattel's leases are primarily related to property leases for its retail stores, warehouses, and corporate offices. Mattel's leases have remaining lease terms of up to 13 years, and often include one or more options to renew for up to 10 years. Renewal and termination options are included in the lease term when it is reasonably certain that Mattel will exercise the option.

In addition, certain of Mattel's lease agreements include contingent rental payments based on a percentage of sales. Contingent rental expense is recorded in the period in which the contingent event becomes probable. Mattel's lease agreements do not contain any material residual guarantees or material restrictive covenants.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of Mattel's leases do not provide an implicit rate, Mattel uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Based on the present value of lease payments for Mattel's existing leases, Mattel recorded net lease assets and lease liabilities of approximately $343 million and $390 million, respectively, upon adoption. The net lease assets were adjusted for deferred rent, lease incentives, and prepaid rent. Mattel had no material finance leases. The new lease standard did not materially impact Mattel's consolidated statements of operations and had no impact on Mattel's consolidated statements of cash flows.

The impact of the new lease standard on the September 30, 2019 consolidated balance sheet was as follows:



	September 30, 2019
	(In thousands, except years and percentage information)
Right-of-use assets, net	$	306,223

Accrued liabilities	$	73,297
Noncurrent lease liabilities	273,906
Total lease liabilities	$	347,203

Weighted average remaining lease term	6.6 years

Weighted average discount rate	8.0		%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the three months ended September 30, 2019 were $35.4 million, which included approximately $11 million related to short-term and variable lease costs. Total operating lease costs for the nine months ended September 30, 2019 were $104.7 million, which included approximately $31 million related to short-term and variable lease costs.

Supplemental information related to leases was as follows:



	For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019
	(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities	$	26,048	$	79,217
Right-of-use assets obtained in exchange for new operating lease liabilities	$	10,789	$	18,221

The following table shows the future maturities of lease liabilities for leases in effect as of September 30, 2019:



Years Ending December 31,	Lease Liabilities
	(In thousands)
2019 (excluding the nine months ended September 30, 2019)	$	25,240
2020	93,741
2021	79,984
2022	59,965
2023	44,657
Thereafter	151,851
	455,438
Less: imputed interest	(108,235		)
	$	347,203

As disclosed in its 2018 Annual Report on Form 10-K/A and under the previous lease standard (Topic 840), future minimum obligations under lease commitments in effect at December 31, 2018 were as follows:



	Capital Leases			Operating Leases
	(In thousands)
2019	$	294		$	110,794
2020	25			83,566
2021	—			72,606
2022	—			59,191
2023	—			56,123
Thereafter	—			133,716
	$	319	(a)	$	515,996

_______________________________________


(a)	Includes minimal imputed interest.

Rental expense under operating leases was $127.1 million for 2018.


6.	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. 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 2019, 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 months ended September 30, 2019 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America segment, thereby causing a foreign currency translation impact.



	December 31, 2018		Currency Exchange Rate Impact			September 30, 2019
	(In thousands)
North America	$	731,234	$	(1,101	)	$	730,133
International	447,619		(2,735		)	444,884
American Girl	207,571		—			207,571
	$	1,386,424	$	(3,836	)	$	1,382,588


7.	Other Noncurrent Assets

Other noncurrent assets include the following:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Identifiable intangible assets (net of accumulated amortization of $238.1 million, $198.7 million, and $207.9 million, respectively)	$	552,332	$	599,938	$	587,528
Deferred income taxes	63,551		75,590		49,937
Other	213,621		205,268		209,541
	$	829,504	$	880,796	$	847,006

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 not impaired during the three and nine months ended September 30, 2019. During the second quarter of 2018 and nine months ended September 30, 2018, Mattel discontinued the use of certain brands and products, which resulted in $4.3 million of asset impairments. Mattel's remaining amortizable intangible assets were not impaired during the three and nine months ended September 30, 2018.


8.	Accrued Liabilities

Accrued liabilities include the following:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
Advertising and promotion	$	117,561	$	131,509	$	86,935
Royalties	92,154		92,998		108,109
Current lease liabilities	73,297		—		—
Taxes other than income taxes	52,381		52,273		54,317
Other	396,869		414,078		455,008
	$	732,262	$	690,858	$	704,369


9.	Seasonal Financing

On December 20, 2017, Mattel, Inc. entered into a syndicated facility agreement (as amended, the "Credit Agreement"), as a borrower thereunder (in such capacity, the "Borrower"), along with certain of the Borrower's other subsidiaries as additional borrowers and/or guarantors thereunder, providing for $1.60 billion in aggregate principal amount of senior secured revolving credit facilities (the "senior secured revolving credit facilities"), consisting of (i) an asset based lending facility with aggregate commitments of $1.31 billion, subject to borrowing base capacity, secured by substantially all of the accounts receivable and inventory of the Borrower and 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 and various equity interests in the borrower and guarantor subsidiaries under the Credit Agreement. The senior secured revolving credit facilities will mature on June 1, 2021.

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 3.00% per annum or (b) an alternate base rate plus an applicable margin ranging from 0.25% to 2.00% 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 borrowings under the senior secured revolving credit facilities of approximately $230 million and $275 million as of September 30, 2019 and September 30, 2018, respectively, and had no borrowings under the senior secured revolving credit facilities as of December 31, 2018. Outstanding letters of credit under the senior secured revolving credit facilities totaled approximately $65 million, $81 million, and $89 million as of September 30, 2019, September 30, 2018, and December 31, 2018, 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 as Mattel's excess availability has been greater than $100 million and the Availability Threshold. As of September 30, 2019, 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.


10.	Long-Term Debt

Long-term debt includes the following:



	September 30, 2019		September 30, 2018		December 31, 2018
	(In thousands)
2010 Senior Notes due October 2020 and October 2040	$	500,000	$	500,000	$	500,000
2011 Senior Notes due November 2041	300,000		300,000		300,000
2013 Senior Notes due March 2023	250,000		250,000