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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
March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                     to  
Commission File Number 001-05647
___________________________________________________________ 
MATTEL, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________________ 
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)
(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 April 17, 2020: 346,898,249 shares

1



MATTEL, INC. AND SUBSIDIARIES

 
 
Page
 
 
 
 
PART I
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  

2



(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 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, or in the future could 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 the COVID-19 pandemic 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 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; (iii) downturns in economic conditions affecting Mattel’s markets which can negatively impact retail customers and consumers, and which can result in lower employment levels, lower consumer disposable income and spending, including lower spending on purchases of Mattel’s products; (iv) other factors which can lower discretionary consumer spending, such as higher costs for fuel and food, drops in the value of homes or other consumer assets, and high levels of consumer debt; (v) potential difficulties or delays Mattel may experience in implementing cost savings and efficiency enhancing initiatives; (vi) other economic and public health conditions or regulatory changes in the markets in which Mattel and its customers and suppliers operate, which could create delays or increase Mattel’s costs, such as higher commodity prices, labor costs or transportation costs, or outbreaks of disease; (vii) currency fluctuations, including movements in foreign exchange rates, which can lower Mattel’s net revenues and earnings, and significantly impact Mattel’s costs; (viii) the concentration of Mattel’s customers, potentially increasing the negative impact to Mattel of difficulties experienced by any of Mattel’s customers, such as the bankruptcy and liquidation of Toys "R" Us, Inc., 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; (xi) the increased costs of developing more sophisticated digital and smart technology products, and the corresponding supply chain and design challenges associated with such products; (xii) work disruptions, which may impact Mattel’s ability to manufacture or deliver product in a timely and cost-effective manner; (xiii) the bankruptcy and liquidation of Mattel’s significant retailers, such as Toys "R" Us, Inc. or the general lack of success of one of Mattel’s significant retailers which could negatively impact Mattel’s revenues or bad debt exposure; (xiv) 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; (xv) the risk of product recalls or product liability suits and costs associated with product safety regulations; (xvi) 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; (xvii) failure to realize the planned benefits from any investments or acquisitions made by Mattel; (xviii) 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; (xix) changes in financing markets or the inability of Mattel to obtain financing on attractive terms; (xx) the impact of litigation, arbitration, or regulatory decisions or settlement actions; (xxi) uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; and (xxii) other risks and uncertainties detailed in Part 1, Item 1A "Risk Factors" in Mattel's 2019 Annual Report on Form 10-K, as amended (the "2019 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.


3



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(Unaudited; in thousands, except share data)
ASSETS
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and equivalents
$
499,407

 
$
380,107

 
$
630,028

Accounts receivable, net of allowances for credit losses of $20.9 million, $24.3 million, and $18.5 million, respectively
528,522

 
624,477

 
936,359

Inventories
560,645

 
615,828

 
495,504

Prepaid expenses and other current assets
218,516

 
274,674

 
186,083

Total current assets
1,807,090

 
1,895,086

 
2,247,974

Noncurrent Assets
 
 
 
 
 
Property, plant, and equipment, net
519,777

 
622,251

 
550,139

Right-of-use assets, net
298,288

 
327,419

 
303,187

Goodwill
1,382,852

 
1,388,758

 
1,390,714

Other noncurrent assets
796,345

 
848,853

 
833,212

Total Assets
$
4,804,352

 
$
5,082,367

 
$
5,325,226

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
Current Liabilities
 
 
 
 
 
Short-term borrowings
$
150,000

 
$

 
$

Accounts payable
306,440

 
324,949

 
459,357

Accrued liabilities
657,254

 
657,053

 
769,513

Income taxes payable
12,290

 
19,409

 
48,037

Total current liabilities
1,125,984

 
1,001,411

 
1,276,907

Noncurrent Liabilities
 
 
 
 
 
Long-term debt
2,848,924

 
2,853,454

 
2,846,751

Noncurrent lease liabilities
262,631

 
294,812

 
270,853

Other noncurrent liabilities
408,930

 
409,315

 
439,001

Total noncurrent liabilities
3,520,485

 
3,557,581

 
3,556,605

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
1,836,067

 
1,822,718

 
1,825,569

Treasury stock at cost: 94.5 million shares, 95.9 million shares, and 94.6 million shares, respectively
(2,316,110
)
 
(2,353,175
)
 
(2,318,921
)
Retained earnings
1,202,440

 
1,450,397

 
1,413,181

Accumulated other comprehensive loss
(1,005,883
)
 
(837,934
)
 
(869,484
)
Total stockholders' equity
157,883

 
523,375

 
491,714

Total Liabilities and Stockholders' Equity
$
4,804,352

 
$
5,082,367

 
$
5,325,226

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

4



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended
March 31,
2020
 
March 31,
2019
 
(Unaudited; in thousands, except per share amounts)
Net Sales
$
594,069

 
$
689,246

Cost of sales
338,886

 
449,456

Gross Profit
255,183

 
239,790

Advertising and promotion expenses
76,282

 
69,465

Other selling and administrative expenses
328,711

 
297,336

Operating Loss
(149,810
)
 
(127,011
)
Interest expense
48,980

 
46,958

Interest (income)
(2,084
)
 
(2,272
)
Other non-operating expense, net
2,143

 
1,904

Loss Before Income Taxes
(198,849
)
 
(173,601
)
Provision for income taxes
11,892

 
2,695

Net Loss
$
(210,741
)
 
$
(176,296
)
Net Loss Per Common Share - Basic
$
(0.61
)
 
$
(0.51
)
Weighted-average number of common shares
346,867

 
345,852

Net Loss Per Common Share - Diluted
$
(0.61
)
 
$
(0.51
)
Weighted-average number of common and potential common shares
346,867

 
345,852


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

5



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 
For the Three Months Ended
 
March 31,
2020
 
March 31,
2019
 
(Unaudited; in thousands)
Net Loss
$
(210,741
)
 
$
(176,296
)
Other Comprehensive (Loss) Income, Net of Tax
 
 
 
Currency translation adjustments
(145,634
)
 
14,133

Employee benefit plan adjustments
3,060

 
223

Net unrealized gains on available-for-sale security
195

 
1,877

Net unrealized gains on derivative instruments:
 
 
 
Unrealized holding gains
9,190

 
5,818

Amounts reclassified from accumulated other comprehensive loss
(3,210
)
 
(759
)
 
5,980

 
5,059

Other Comprehensive (Loss) Income, Net of Tax
(136,399
)
 
21,292

Comprehensive Loss
$
(347,140
)
 
$
(155,004
)

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

6



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Three Months Ended
March 31,
2020
 
March 31,
2019
 
(Unaudited; in thousands)
Cash Flows From Operating Activities
 
 
 
Net loss
$
(210,741
)
 
$
(176,296
)
Adjustments to reconcile net loss to net cash flows used for operating activities:
 
 
 
Depreciation
43,654

 
52,071

Amortization
9,965

 
10,429

Share-based compensation
14,275

 
11,865

Bad debt expense
5,248

 
2,745

Inventory obsolescence
10,190

 
21,452

Deferred income taxes
5,210

 
(66
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
365,002

 
346,381

Inventories
(109,938
)
 
(94,698
)
Prepaid expenses and other current assets
(16,343
)
 
(36,717
)
Accounts payable, accrued liabilities, and income taxes payable
(316,291
)
 
(321,874
)
Other, net
25,280

 
(8,102
)
Net cash flows used for operating activities
(174,489
)
 
(192,810
)
Cash Flows From Investing Activities
 
 
 
Purchases of tools, dies, and molds
(11,363
)
 
(10,706
)
Purchases of other property, plant, and equipment
(23,943
)
 
(13,409
)
(Payments for) proceeds from foreign currency forward exchange contracts, net
(46,565
)
 
4,703

Other, net
714

 
212

Net cash flows used for investing activities
(81,157
)
 
(19,200
)
Cash Flows From Financing Activities
 
 
 
Proceeds from (payments for) short-term borrowings, net
150,000

 
(4,176
)
Other, net
(678
)
 
(173
)
Net cash flows provided by (used for) financing activities
149,322

 
(4,349
)
Effect of Currency Exchange Rate Changes on Cash
(24,297
)
 
1,985

Decrease in Cash and Equivalents
(130,621
)
 
(214,374
)
Cash and Equivalents at Beginning of Period
630,028

 
594,481

Cash and Equivalents at End of Period
$
499,407

 
$
380,107

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

7



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders'
Equity
 
(Unaudited; in thousands)
Balance, December 31, 2019
$
441,369

 
$
1,825,569

 
$
(2,318,921
)
 
$
1,413,181

 
$
(869,484
)
 
$
491,714

Net loss

 

 

 
(210,741
)
 

 
(210,741
)
Other comprehensive loss, net of tax

 

 

 

 
(136,399
)
 
(136,399
)
Issuance of treasury stock for restricted stock units vesting

 
(3,777
)
 
2,811

 

 

 
(966
)
Share-based compensation

 
14,275

 

 

 

 
14,275

Balance, March 31, 2020
$
441,369

 
$
1,836,067

 
$
(2,316,110
)
 
$
1,202,440

 
$
(1,005,883
)
 
$
157,883

 
 
 
 
 
 
 
 
 
 
 
 
 
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

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

8



MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation
The 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 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 Annual Report on Form 10-K.
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 $20.9 million, $24.3 million, and $18.5 million as of March 31, 2020March 31, 2019, and December 31, 2019, respectively.
3.
Inventories
Inventories include the following:
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(In thousands)
Raw materials and work in process
$
107,880

 
$
118,143

 
$
103,123

Finished goods
452,765

 
497,685

 
392,381

 
$
560,645

 
$
615,828

 
$
495,504


4.
Property, Plant, and Equipment
Property, plant, and equipment, net includes the following: 
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(In thousands)
Land
$
24,856

 
$
25,071

 
$
25,112

Buildings
297,910

 
298,022

 
302,956

Machinery and equipment
769,761

 
885,178

 
812,509

Software
367,143

 
398,071

 
364,391

Tools, dies, and molds
719,615

 
814,078

 
747,706

Leasehold improvements
179,872

 
241,769

 
183,250


2,359,157

 
2,662,189

 
2,435,924

Less: accumulated depreciation
(1,839,380
)
 
(2,039,938
)
 
(1,885,785
)
 
$
519,777

 
$
622,251

 
$
550,139



9



During the three months ended December 31, 2019, in conjunction with the Capital Light program, Mattel discontinued production at one of its plants based in Mexico and has committed to a plan to dispose of the land and building. These assets meet the held for sale criteria, are actively being marketed for sale, and are included within property, plant and equipment, net in the consolidated balance sheets.
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. Mattel tests its goodwill for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value.
The change in the carrying amount of goodwill by operating segment for the three months ended March 31, 2020 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,
2019
 
Currency
Exchange Rate
Impact
 
March 31,
2020
 
(In thousands)
North America
$
732,430

 
$
(1,945
)
 
$
730,485

International
450,713

 
(5,917
)
 
444,796

American Girl
207,571

 

 
207,571

 
$
1,390,714

 
$
(7,862
)
 
$
1,382,852


6.
Other Noncurrent Assets
Other noncurrent assets include the following: 
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(In thousands)
Identifiable intangible assets (net of accumulated amortization of $258.0 million, $218.3 million, and $248.0 million, respectively)
$
534,044

 
$
580,497

 
$
553,114

Deferred income taxes
62,674

 
50,510

 
67,900

Other
199,627

 
217,846

 
212,198

 
$
796,345

 
$
848,853

 
$
833,212


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 months ended March 31, 2020 and 2019.
7.
Accrued Liabilities
Accrued liabilities include the following: 
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(In thousands)
Incentive compensation
$
135,833

 
$
87,504

 
$
122,923

Current lease liabilities
78,247

 
77,092

 
74,065

Advertising and promotion
71,563

 
61,793

 
93,804

Royalties
22,701

 
36,385

 
94,228

Other
348,910

 
394,279

 
384,493

 
$
657,254

 
$
657,053

 
$
769,513



10



8.
Seasonal Financing
On December 20, 2017, Mattel entered into a syndicated facility agreement, which was subsequently amended in 2018 and 2019 (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 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 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 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% per annum or (b) an alternate base rate plus an applicable margin ranging from 0.25% to 1.75% 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 borrowings under the senior secured revolving credit facilities of $150.0 million as of March 31, 2020 and had no borrowings under the senior secured revolving credit facilities as of March 31, 2019 and December 31, 2019. Outstanding letters of credit under the senior secured revolving credit facilities totaled approximately $13 million, $70 million, and $55 million as of March 31, 2020, March 31, 2019, and December 31, 2019, 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 March 31, 2020, 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.

11



9.
Long-Term Debt
Long-term debt includes the following:
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(In thousands)
2010 Senior Notes due October 2020
$

 
$
250,000

 
$

2010 Senior Notes due October 2040
250,000

 
250,000

 
250,000

2011 Senior Notes due November 2041
300,000

 
300,000

 
300,000

2013 Senior Notes due March 2023
250,000

 
250,000

 
250,000

2016 Senior Notes due August 2021

 
350,000

 

2017/2018 Senior Notes due December 2025
1,500,000

 
1,500,000

 
1,500,000

2019 Senior Notes due December 2027
600,000

 

 
600,000

Debt issuance costs and debt discount
(51,076
)
 
(46,546
)
 
(53,249
)

2,848,924

 
2,853,454

 
2,846,751

Less: current portion

 

 


$
2,848,924

 
$
2,853,454

 
$
2,846,751


10.
Other Noncurrent Liabilities
Other noncurrent liabilities include the following:
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
(In thousands)
Benefit plan liabilities
$
205,694

 
$
183,294

 
$
212,280

Noncurrent income tax liabilities
125,798

 
143,723

 
125,515

Other
77,438

 
82,298

 
101,206

 
$
408,930

 
$
409,315

 
$
439,001


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 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 income (loss)
(3,210
)
 

 
1,358

 

 
(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
)


12



 
For the Three Months Ended March 31, 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
5,818

 
1,877

 
(1,206
)
 
14,133

 
20,622

Amounts reclassified from accumulated other comprehensive income (loss)
(759
)
 

 
1,429

 

 
670

Net increase in other comprehensive income (loss)
5,059

 
1,877

 
223

 
14,133

 
21,292

Accumulated Other Comprehensive Income (Loss), Net of Tax, as of March 31, 2019
$
16,470

 
$
(4,670
)
 
$
(142,540
)
 
$
(707,194
)
 
$
(837,934
)
The following table presents the classification and amount of the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations:
 
For the Three Months Ended
 
 
 
March 31,
2020
 
March 31,
2019
 
Statements of Operations
Classification
 
(In thousands)
 
 
Derivative Instruments
 
Gain on foreign currency forward exchange contracts and other
$
3,193

 
$
927

 
Cost of sales
Tax effect
17

 
(168
)
 
Provision for income taxes

$
3,210

 
$
759

 
Net loss
Employee Benefit Plans
 
 
 
 
 
Amortization of prior service credit (a)
$
466

 
$
493

 
Other non-operating expense, net
Recognized actuarial loss (a)
(2,340
)
 
(1,737
)
 
Other non-operating expense, net

(1,874
)
 
(1,244
)
 
 
Tax effect
516

 
(185
)
 
Provision for income taxes

$
(1,358
)
 
$
(1,429
)
 
Net 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 15 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 income (loss) within stockholders' equity. Currency translation adjustments resulted in a net loss of $145.6 million for the three months ended March 31, 2020, primarily due to the weakening of the Mexican peso, Russian ruble, Brazilian real, and the British pound sterling against the U.S. dollar. Currency translation adjustments resulted in a net gain of $14.1 million for the three months ended March 31, 2019, primarily due to the strengthening of the British pound sterling and Russian ruble against the U.S. dollar.

13



12.
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 ("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 commodities including certain raw materials. As of March 31, 2020March 31, 2019, and December 31, 2019, Mattel held foreign currency forward exchange contracts and other commodity derivative instruments, with notional amounts of $1.37 billion, $1.10 billion, and $742.0 million, respectively.
The following tables present Mattel's derivative assets and liabilities:
 
Derivative Assets
 
Fair Value
 
Balance Sheet Classification
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
 
(In thousands)
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign currency forward exchange contracts and other
$
21,121

 
$
16,703

 
$
10,227

 
Prepaid expenses and 
other current assets
Foreign currency forward exchange contracts and other
2,525

 
3,041

 
715

 
Other noncurrent assets
Total derivatives designated as hedging instruments
$
23,646

 
$
19,744

 
$
10,942

 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Foreign currency forward exchange contracts and other
$
13,811

 
$
377

 
$
4,060

 
Prepaid expenses and
other current assets

$
37,457

 
$
20,121

 
$
15,002

 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities
 
Fair Value
 
Balance Sheet Classification
 
March 31,
2020
 
March 31,
2019
 
December 31,
2019
 
 
(In thousands)
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Foreign currency forward exchange contracts and other
$
6,841

 
$
1,045

 
$
2,500

 
Accrued liabilities
Foreign currency forward exchange contracts and other
2,507

 
146

 
213

 
Other noncurrent liabilities
Total derivatives designated as hedging instruments
$
9,348

 
$
1,191

 
$
2,713

 
 
Derivatives not designated as hedging instruments

 

 

 
 
Foreign currency forward exchange contracts and other
$
1,594

 
$
4,992

 
$
263

 
Accrued liabilities
Foreign currency forward exchange contracts and other
224

 

 

 
Other noncurrent liabilities
Total derivatives not designated as hedging instruments
$
1,818

 
$
4,992

 
$
263

 
 
 
$
11,166

 
$
6,183

 
$
2,976

 
 


14



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
 
 
 
March 31, 2020
 
March 31, 2019
 
Statements of
Operations
Classification
 
Amount of Gain 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
$
9,190

 
$
3,210

 
$
5,818

 
$
759

 
Cost of sales

The net gains of $3.2 million and $0.8 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.
 
Amount of (Loss) Gain Recognized in the Statements of Operations
 
Statements of Operations
Classification
 
For the Three Months Ended
 
 
March 31,
2020
 
March 31,
2019
 
 
(In thousands)
 
 
Derivatives not designated as hedging instruments
 
Foreign currency forward exchange contracts and other
$
(38,369
)
 
$
(498
)
 
Other non-operating expense, net

The net losses of $38.4 million and $0.5 million recognized in the consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.
13.
Fair Value Measurements
The following tables present information about Mattel's assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of March 31, 2020March 31, 2019, and December 31, 2019 and indicates 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.

15



Mattel's financial assets and liabilities include the following:
 
March 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets
 
 
 
 
 
 
 
Foreign currency forward exchange contracts and other (a)
$

 
$
37,457

 
$

 
$
37,457

Available-for-sale security (b)
3,725

 

 

 
3,725

Total assets
$
3,725

 
$
37,457

 
$

 
$
41,182

Liabilities

 

 

 

Foreign currency forward exchange contracts and other (a)
$

 
$
11,166

 
$

 
$
11,166

 
 
 
 
 
 
 
 
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets
 
 
 
 
 
 
 
Foreign currency forward exchange contracts and other (a)
$

 
$
20,121

 
$

 
$
20,121

Available-for-sale security (b)
7,150

 

 

 
7,150

Total assets
$
7,150

 
$
20,121

 
$

 
$
27,271

Liabilities

 

 

 

Foreign currency forward exchange contracts and other (a)
$

 
$
6,183

 
$

 
$
6,183

 
 
 
 
 
 
 
 
 
December 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets
 
 
 
 
 
 
 
Foreign currency forward exchange contracts and other (a)
$

 
$
15,002

 
$

 
$
15,002

Available-for-sale security (b)
3,530

 

 

 
3,530

Total assets
$
3,530

 
$
15,002

 
$

 
$
18,532