NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Preparation
The consolidated financial statements include the accounts of Mattel, Inc. and its subsidiaries. All wholly and majority-owned subsidiaries are consolidated and included in Mattel’s consolidated financial statements. Mattel does not have any minority stock ownership interests in which it has a controlling financial interest that would require consolidation. All significant intercompany accounts and transactions have been eliminated upon consolidation.
On January 1, 2018, Mattel adopted ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result, other selling and administrative expenses, operating income (loss), and other non-operating expense, net have been retrospectively restated. The impact to Mattel’s consolidated financial statements was not material. See further discussion in "Note 1 to the Consolidated Financial Statements—Summary of Significant Accounting Policies—New Accounting Pronouncements" and "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans."
Restatement of Quarterly Financial Information
On August 6, 2019, Mattel was made aware of an anonymous whistleblower letter. An independent investigation by the Audit Committee was initiated in August 2019 on matters discussed in the letter. Based on the independent investigation, management determined that it had failed to properly consider an indefinite-lived intangible asset in Mattel’s tax valuation allowance calculation for the three months ended September 30, 2017, which resulted in the restatement of the Company’s financial results for the third and fourth quarters of 2017, as further described in "Note 17 to the Consolidated Financial Statements—Restatement of Quarterly Financial Information (Unaudited)".
Revision of Consolidated Financial Statements
Mattel’s consolidated financial statements have been revised to correct certain other prior period misstatements which were not material, both individually or in the aggregate, to the previously issued consolidated financial statements. These misstatements relate to improper capitalization of certain advertising costs, the under-accrual of sales adjustments, freight and logistics costs, employee related costs, the provision for income taxes, and other information disclosed in the notes to the Consolidated Financial Statements. The provision for income taxes misstatement was unrelated to the restated income tax matter described in "Note 17 to the Consolidated Financial Statements—Restatement of Quarterly Financial Information (Unaudited)".
The following tables present the impact of the revisions on Mattel’s previously issued Consolidated Statements of Operations (including Comprehensive (Loss) Income), and Cash Flows for the years ended December 31, 2018, 2017, and 2016, its Consolidated Balance Sheets as of December 31, 2018 and 2017, and its Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017, and 2016. The presentation of the revised Consolidated Balance Sheets only presents those line items which were impacted as a result of the revisions. The effect of the revisions to the Consolidated Statements of Cash Flows was to components within operating cash flows. There were no effects on total operating activities, investing activities, financing activities, or cash and cash equivalents as a result of the revisions. All relevant footnotes to the consolidated financial statements have also been revised to reflect the items above.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Consolidated Balance Sheet
|
|
|
|
|
|
Prepaid expenses and other current assets
|
$
|
244,987
|
|
|
$
|
(5,240
|
)
|
|
$
|
239,747
|
|
Total current assets
|
$
|
2,352,440
|
|
|
$
|
(5,240
|
)
|
|
$
|
2,347,200
|
|
Total Assets
|
$
|
5,243,465
|
|
|
$
|
(5,240
|
)
|
|
$
|
5,238,225
|
|
Accrued liabilities
|
$
|
700,421
|
|
|
$
|
3,948
|
|
|
$
|
704,369
|
|
Income taxes payable
|
$
|
10,046
|
|
|
$
|
3,474
|
|
|
$
|
13,520
|
|
Total current liabilities
|
$
|
1,252,608
|
|
|
$
|
7,422
|
|
|
$
|
1,260,030
|
|
Retained earnings
|
$
|
1,629,257
|
|
|
$
|
(12,662
|
)
|
|
$
|
1,616,595
|
|
Total stockholders’ equity
|
$
|
669,465
|
|
|
$
|
(12,662
|
)
|
|
$
|
656,803
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
5,243,465
|
|
|
$
|
(5,240
|
)
|
|
$
|
5,238,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Consolidated Balance Sheet
|
|
|
|
|
|
Accounts receivable, net
|
$
|
1,128,610
|
|
|
$
|
(3,958
|
)
|
|
$
|
1,124,652
|
|
Prepaid expenses and other current assets
|
$
|
303,053
|
|
|
$
|
(7,388
|
)
|
|
$
|
295,665
|
|
Total current assets
|
$
|
3,111,588
|
|
|
$
|
(11,346
|
)
|
|
$
|
3,100,242
|
|
Other noncurrent assets
|
$
|
944,961
|
|
|
$
|
990
|
|
|
$
|
945,951
|
|
Total Assets
|
$
|
6,238,503
|
|
|
$
|
(10,356
|
)
|
|
$
|
6,228,147
|
|
Retained earnings
|
$
|
2,179,358
|
|
|
$
|
(10,356
|
)
|
|
$
|
2,169,002
|
|
Total stockholders’ equity
|
$
|
1,257,455
|
|
|
$
|
(10,356
|
)
|
|
$
|
1,247,099
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
6,238,503
|
|
|
$
|
(10,356
|
)
|
|
$
|
6,228,147
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Consolidated Statement of Operations and Comprehensive Loss
|
|
|
|
|
|
Net Sales
|
$
|
4,510,852
|
|
|
$
|
3,958
|
|
|
$
|
4,514,810
|
|
Cost of sales
|
2,716,127
|
|
|
—
|
|
|
2,716,127
|
|
Gross Profit
|
1,794,725
|
|
|
3,958
|
|
|
1,798,683
|
|
Advertising and promotion expenses
|
526,436
|
|
|
(2,148
|
)
|
|
524,288
|
|
Other selling and administrative expenses
|
1,504,796
|
|
|
3,948
|
|
|
1,508,744
|
|
Operating Loss
|
(236,507
|
)
|
|
2,158
|
|
|
(234,349
|
)
|
Interest expense
|
181,886
|
|
|
—
|
|
|
181,886
|
|
Interest (income)
|
(6,463
|
)
|
|
—
|
|
|
(6,463
|
)
|
Other non-operating expense, net
|
7,331
|
|
|
—
|
|
|
7,331
|
|
Loss Before Income Taxes
|
(419,261
|
)
|
|
2,158
|
|
|
(417,103
|
)
|
Provision for income taxes
|
111,732
|
|
|
4,464
|
|
|
116,196
|
|
Net Loss
|
$
|
(530,993
|
)
|
|
$
|
(2,306
|
)
|
|
$
|
(533,299
|
)
|
Comprehensive Loss
|
$
|
(608,433
|
)
|
|
$
|
(2,306
|
)
|
|
$
|
(610,739
|
)
|
Net Loss Per Common Share - Basic
|
$
|
(1.54
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.55
|
)
|
Weighted average number of common shares
|
345,012
|
|
|
—
|
|
345,012
|
|
Net Loss Per Common Share - Diluted
|
$
|
(1.54
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.55
|
)
|
Weighted average number of common and potential common shares
|
345,012
|
|
|
—
|
|
345,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Consolidated Statement of Operations and Comprehensive Loss
|
|
|
|
|
|
Net Sales
|
$
|
4,881,951
|
|
|
$
|
(458
|
)
|
|
$
|
4,881,493
|
|
Cost of sales
|
3,061,122
|
|
|
(4,200
|
)
|
|
3,056,922
|
|
Gross Profit
|
1,820,829
|
|
|
3,742
|
|
|
1,824,571
|
|
Advertising and promotion expenses
|
642,286
|
|
|
—
|
|
|
642,286
|
|
Other selling and administrative expenses
|
1,517,983
|
|
|
—
|
|
|
1,517,983
|
|
Operating Loss
|
(339,440
|
)
|
|
3,742
|
|
|
(335,698
|
)
|
Interest expense
|
105,214
|
|
|
—
|
|
|
105,214
|
|
Interest (income)
|
(7,777
|
)
|
|
—
|
|
|
(7,777
|
)
|
Other non-operating expense, net
|
68,110
|
|
|
—
|
|
|
68,110
|
|
Loss Before Income Taxes
|
(504,987
|
)
|
|
3,742
|
|
|
(501,245
|
)
|
Provision for income taxes
|
548,849
|
|
|
4,485
|
|
|
553,334
|
|
Net Loss
|
$
|
(1,053,836
|
)
|
|
$
|
(743
|
)
|
|
$
|
(1,054,579
|
)
|
Comprehensive Loss
|
$
|
(892,593
|
)
|
|
$
|
(743
|
)
|
|
$
|
(893,336
|
)
|
Net Loss Per Common Share - Basic
|
$
|
(3.07
|
)
|
|
$
|
—
|
|
|
$
|
(3.07
|
)
|
Weighted average number of common shares
|
343,564
|
|
|
—
|
|
|
343,564
|
|
Net Loss Per Common Share - Diluted
|
$
|
(3.07
|
)
|
|
$
|
—
|
|
|
$
|
(3.07
|
)
|
Weighted average number of common and potential common shares
|
343,564
|
|
|
—
|
|
|
343,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Consolidated Statement of Operations and Comprehensive Income
|
|
|
|
|
|
Net Sales
|
$
|
5,456,650
|
|
|
$
|
(3,500
|
)
|
|
$
|
5,453,150
|
|
Cost of sales
|
2,902,259
|
|
|
4,200
|
|
|
2,906,459
|
|
Gross Profit
|
2,554,391
|
|
|
(7,700
|
)
|
|
2,546,691
|
|
Advertising and promotion expenses
|
634,947
|
|
|
—
|
|
|
634,947
|
|
Other selling and administrative expenses
|
1,391,769
|
|
|
—
|
|
|
1,391,769
|
|
Operating Income
|
527,675
|
|
|
(7,700
|
)
|
|
519,975
|
|
Interest expense
|
95,118
|
|
|
—
|
|
|
95,118
|
|
Interest (income)
|
(9,144
|
)
|
|
—
|
|
|
(9,144
|
)
|
Other non-operating expense, net
|
31,959
|
|
|
—
|
|
|
31,959
|
|
Income Before Income Taxes
|
409,742
|
|
|
(7,700
|
)
|
|
402,042
|
|
Provision for income taxes
|
91,720
|
|
|
(2,586
|
)
|
|
89,134
|
|
Net Income
|
$
|
318,022
|
|
|
$
|
(5,114
|
)
|
|
$
|
312,908
|
|
Comprehensive Income
|
$
|
223,892
|
|
|
$
|
(5,114
|
)
|
|
$
|
218,778
|
|
Net Income Per Common Share - Basic
|
$
|
0.93
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.91
|
|
Weighted average number of common shares
|
341,480
|
|
|
—
|
|
|
341,480
|
|
Net Income Per Common Share - Diluted
|
$
|
0.92
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.91
|
|
Weighted average number of common and potential common shares
|
344,233
|
|
|
—
|
|
|
344,233
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands)
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
Net loss
|
$
|
(530,993
|
)
|
|
$
|
(2,306
|
)
|
|
$
|
(533,299
|
)
|
Adjustments to reconcile net loss to net cash flows used for operating activities:
|
|
|
|
|
|
Depreciation
|
232,837
|
|
|
—
|
|
|
232,837
|
|
Amortization
|
39,095
|
|
|
—
|
|
|
39,095
|
|
Share-based compensation
|
48,915
|
|
|
—
|
|
|
48,915
|
|
Bad debt expense
|
40,894
|
|
|
—
|
|
|
40,894
|
|
Inventory obsolescence
|
74,974
|
|
|
—
|
|
|
74,974
|
|
Asset impairments
|
18,203
|
|
|
—
|
|
|
18,203
|
|
Deferred income taxes
|
12,359
|
|
|
990
|
|
|
13,349
|
|
Indefinite reinvestment assertion and U.S. Tax Act
|
18,275
|
|
|
—
|
|
|
18,275
|
|
Increase (decrease) from changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
76,373
|
|
|
(3,958
|
)
|
|
72,415
|
|
Inventories
|
(53,840
|
)
|
|
—
|
|
|
(53,840
|
)
|
Prepaid expenses and other current assets
|
56,378
|
|
|
(2,148
|
)
|
|
54,230
|
|
Accounts payable, accrued liabilities, and income taxes payable
|
(54,819
|
)
|
|
7,422
|
|
|
(47,397
|
)
|
Other, net
|
(5,968
|
)
|
|
—
|
|
|
(5,968
|
)
|
Net cash flows used for operating activities
|
$
|
(27,317
|
)
|
|
$
|
—
|
|
|
$
|
(27,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
Net loss
|
$
|
(1,053,836
|
)
|
|
$
|
(743
|
)
|
|
$
|
(1,054,579
|
)
|
Adjustments to reconcile net loss to net cash flows used for operating activities:
|
|
|
|
|
|
Depreciation
|
240,818
|
|
|
—
|
|
|
240,818
|
|
Amortization
|
33,949
|
|
|
—
|
|
|
33,949
|
|
Share-based compensation
|
67,119
|
|
|
—
|
|
|
67,119
|
|
Bad debt expense
|
17,568
|
|
|
—
|
|
|
17,568
|
|
Inventory obsolescence
|
127,592
|
|
|
—
|
|
|
127,592
|
|
Asset impairments
|
56,324
|
|
|
—
|
|
|
56,324
|
|
Deferred income taxes
|
(19,840
|
)
|
|
1,830
|
|
|
(18,010
|
)
|
Indefinite reinvestment assertion and U.S. Tax Act
|
(105,279
|
)
|
|
(1,770
|
)
|
|
(107,049
|
)
|
Valuation allowance on deferred tax assets
|
561,921
|
|
|
4,425
|
|
|
566,346
|
|
Loss on discontinuation of Venezuelan operations
|
58,973
|
|
|
—
|
|
|
58,973
|
|
Increase (decrease) from changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(3,942
|
)
|
|
458
|
|
|
(3,484
|
)
|
Inventories
|
(91,644
|
)
|
|
—
|
|
|
(91,644
|
)
|
Prepaid expenses and other current assets
|
33,681
|
|
|
—
|
|
|
33,681
|
|
Accounts payable, accrued liabilities, and income taxes payable
|
98,044
|
|
|
(4,200
|
)
|
|
93,844
|
|
Other, net
|
(49,062
|
)
|
|
—
|
|
|
(49,062
|
)
|
Net cash flows used for operating activities
|
$
|
(27,614
|
)
|
|
$
|
—
|
|
|
$
|
(27,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
Net income
|
$
|
318,022
|
|
|
$
|
(5,114
|
)
|
|
$
|
312,908
|
|
Adjustments to reconcile net income to net cash flows provided by operating activities:
|
|
|
|
|
|
Depreciation
|
235,797
|
|
|
—
|
|
|
235,797
|
|
Amortization
|
26,543
|
|
|
—
|
|
|
26,543
|
|
Share-based compensation
|
53,950
|
|
|
—
|
|
|
53,950
|
|
Bad debt expense
|
9,165
|
|
|
—
|
|
|
9,165
|
|
Inventory obsolescence
|
31,455
|
|
|
—
|
|
|
31,455
|
|
Deferred income taxes
|
1,236
|
|
|
(2,586
|
)
|
|
(1,350
|
)
|
Increase (decrease) from changes in assets and liabilities, net of acquired assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(33,198
|
)
|
|
3,500
|
|
|
(29,698
|
)
|
Inventories
|
(68,650
|
)
|
|
—
|
|
|
(68,650
|
)
|
Prepaid expenses and other current assets
|
34,754
|
|
|
—
|
|
|
34,754
|
|
Accounts payable, accrued liabilities, and income taxes payable
|
9,006
|
|
|
4,200
|
|
|
13,206
|
|
Other, net
|
(23,571
|
)
|
|
—
|
|
|
(23,571
|
)
|
Net cash flows provided by operating activities
|
$
|
594,509
|
|
|
$
|
—
|
|
|
$
|
594,509
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Retained earnings
|
$
|
1,629,257
|
|
|
$
|
(12,662
|
)
|
|
$
|
1,616,595
|
|
Total stockholders’ equity
|
$
|
669,465
|
|
|
$
|
(12,662
|
)
|
|
$
|
656,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Retained earnings
|
$
|
2,179,358
|
|
|
$
|
(10,356
|
)
|
|
$
|
2,169,002
|
|
Total stockholders’ equity
|
$
|
1,257,455
|
|
|
$
|
(10,356
|
)
|
|
$
|
1,247,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(in thousands)
|
Retained earnings at beginning of period(a)
|
$
|
3,745,815
|
|
|
$
|
(4,499
|
)
|
|
$
|
3,741,316
|
|
Total stockholders’ equity at beginning of period(a)
|
$
|
2,633,254
|
|
|
$
|
(4,499
|
)
|
|
$
|
2,628,755
|
|
Retained earnings at end of period
|
$
|
3,545,359
|
|
|
$
|
(9,613
|
)
|
|
$
|
3,535,746
|
|
Total stockholders’ equity at end of period
|
$
|
2,407,782
|
|
|
$
|
(9,613
|
)
|
|
$
|
2,398,169
|
|
|
|
(a)
|
Adjustments represent the cumulative effect of immaterial revisions originating in periods prior to 2016.
|
Use of Estimates
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could ultimately differ from those estimates.
Cash and Equivalents
Cash and equivalents include short-term investments, which are highly liquid investments with maturities of three months or less when purchased. Such investments are stated at cost, which approximates market value.
Accounts Receivable and Allowance for Doubtful Accounts
Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash generation, financing availability, and liquidity status of each customer. Customers are reviewed at least annually, with more frequent reviews performed as necessary, based on the customers’ financial condition and the level of credit being extended. For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping to those customers on credit. Mattel uses a variety of financial arrangements to ensure collectibility of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, factoring, or requiring cash in advance of shipment.
Mattel records an allowance for doubtful accounts based on management’s assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging, and customer disputes.
Inventories
Inventories, net of allowance for obsolescence, are stated at the lower of cost or net realizable value. Expense associated with the allowance for obsolescence is recognized in cost of sales and establishes a lower cost basis for the inventory. Cost is determined by the first-in, first-out method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 10 to 30 years for buildings, 3 to 15 years for machinery and equipment, 3 to 10 years for software, and 10 to 20 years, not to exceed the lease term, for leasehold improvements. Tools, dies, and molds are depreciated using the straight-line method over 3 years. Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The carrying value of property, plant, and equipment is reviewed when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Any potential impairment identified is assessed by evaluating the operating performance and future undiscounted cash flows of the underlying assets. When property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the consolidated balance sheet, and any resulting gain or loss is included in the statements of operations.
Goodwill and Intangible Assets
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.
Mattel had no nonamortizable intangible assets as of and for the year ended December 31, 2018. Prior to 2018, Mattel tested nonamortizable intangible assets for impairment annually in the third quarter or whenever events or changes in circumstances indicated that the carrying value may have exceeded its fair value.
Mattel also tests its amortizable intangible assets, which are primarily comprised of trademarks and trade names, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered. Amortization is computed primarily using the straight-line method over the estimated useful lives of the amortizable intangible assets.
Foreign Currency Translation Exposure
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 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 year-end exchange rates. Net income (loss) and cash flow items are translated at weighted-average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders’ equity. Mattel’s primary currency translation exposures in 2018 were related to its net investments in entities having functional currencies denominated in the Euro, British pound sterling, Russian ruble, and Brazilian real.
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 (loss) income in the consolidated statements of operations. Gains and losses on unhedged intercompany loans and advances are recorded as a component of other non-operating 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, Chinese renminbi, Australian dollar, Russian ruble, and Brazilian real were the primary transactions that caused foreign currency transaction exposure for Mattel in 2018.
Derivative Instruments
Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. At the inception of the contracts, Mattel designates these derivatives as cash flow hedges and documents the relationship of the hedge to the underlying transaction. Hedge effectiveness is assessed at inception and throughout the life of the hedge to ensure the hedge qualifies for hedge accounting. Changes in fair value associated with hedge ineffectiveness, if any, are recorded in the statements of operations. Changes in fair value of cash flow hedge derivatives are deferred and recorded as part of accumulated other comprehensive loss in stockholders’ equity until the underlying transaction affects earnings. In the event that an anticipated transaction is no longer likely to occur, Mattel recognizes the change in fair value of the derivative in its statements of operations in the period the determination is made.
Additionally, Mattel 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.
Revenue Recognition and Sales Adjustments
Revenue is recognized when control of the goods is transferred to the customer, which is either upon shipment or upon receipt of finished goods by the customer, depending on the contract terms. Mattel routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns or defective merchandise. Such programs, which can be either contractual or discretionary in nature, are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as customer sales volume. Mattel bases its estimates for these programs on agreed upon customer contract terms as well as historical experience. The costs of these programs are considered variable consideration and are recorded as sales adjustments that reduce gross sales in the period the related sale is recognized.
Advertising and Promotion Costs
Costs of media advertising are expensed the first time the advertising takes place, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of catalog production and mailing costs, which are generally amortized within three months from the date the catalogs are mailed.
Product Recalls and Withdrawals
Mattel establishes a reserve for product recalls and withdrawals on a product-specific basis when circumstances giving rise to the recall or withdrawal become known. Facts and circumstances related to the recall or withdrawal, including where the product affected by the recall or withdrawal is located (e.g., with consumers, in customers’ inventory, or in Mattel’s inventory), cost estimates for shipping and handling for returns, cost estimates for communicating the recall or withdrawal to consumers and customers, and cost estimates for parts and labor if the recalled or withdrawn product is deemed to be repairable, are considered when establishing a product recall or withdrawal reserve. These factors are updated and reevaluated each period, and the related reserves are adjusted when these factors indicate that the recall or withdrawal reserve is either not sufficient to cover or exceeds the estimated product recall or withdrawal expenses.
Design and Development Costs
Product design and development costs primarily include employee compensation and outside services and are charged to the results of operations as incurred.
Employee Benefit Plans
Mattel and certain of its subsidiaries have retirement and other postretirement benefit plans covering substantially all employees of these entities. Actuarial valuations are used in determining amounts recognized in the financial statements for certain retirement and other postretirement benefit plans (see "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans").
Share-Based Payments
Mattel recognizes the cost of employee share-based payment awards on a straight-line attribution basis over the requisite employee service period, net of estimated forfeitures.
Determining the fair value of share-based awards at the measurement date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility, and the expected dividends. With the exception of certain performance options granted in 2018, which are valued using a Monte Carlo valuation methodology, Mattel estimates the fair value of options granted using the Black-Scholes valuation model. The expected life of the options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is based on the historical volatility of Mattel’s stock for a period approximating the expected life, the expected dividend yield is based on Mattel’s most recent actual annual dividend payout, and the risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues approximating the expected life. Judgment is also required in estimating the amount of share-based awards that will be forfeited prior to vesting.
Mattel determines the fair value of RSUs, excluding performance RSUs, based on the closing market price of Mattel’s common stock on the date of grant, adjusted by the present value of the expected dividends for RSUs that are not entitled to a dividend during the vest period.
Mattel determines the fair value of the performance-related components of its performance RSUs based on the closing market price of Mattel's common stock on the date of grant. It determines the fair value of the market-related components of its performance RSUs based on a Monte Carlo valuation methodology.
In 2016, Mattel early adopted Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting, which required companies to recognize all excess tax benefits and tax deficiencies in the income statement when the awards vest or are settled. Upon adoption in the fourth quarter of 2016, Mattel recognized $4.3 million in discrete tax benefits related to share-based payment accounting. Mattel also elected to apply the change in presentation of excess tax benefits in the statements of cash flows on a prospective basis, and as a result, prior periods were not retrospectively restated. Excess tax benefits (deficits) in 2018, 2017, and 2016 were classified as an operating activity in the statements of cash flows.
Income Taxes
Certain income and expense items are accounted for differently for financial reporting and income tax purposes. Deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, applying enacted statutory income tax rates in effect for the year in which the differences are expected to reverse.
In the normal course of business, Mattel is regularly audited by federal, state, local, and foreign tax authorities. The ultimate settlement of any particular issue with the applicable taxing authority could have a material impact on Mattel’s consolidated financial statements.
Venezuelan Operations
Since January 1, 2010, Mattel has accounted for Venezuela as a highly inflationary economy as the three-year cumulative inflation rate for Venezuela exceeded 100%. Accordingly, Mattel’s Venezuelan subsidiary used the U.S. dollar as its functional currency, and monetary assets and liabilities denominated in Venezuelan bolívar fuerte ("BsF") generated income or expense for changes in value associated with foreign currency exchange rate fluctuations against the U.S. dollar.
During the first quarter of 2016, Mattel changed its remeasurement rate, which resulted in an unrealized foreign currency exchange loss of approximately $26 million, which was recognized in other non-operating expense, net in the consolidated statements of operations.
During December 2017, Mattel initiated actions to discontinue operations in Venezuela and concluded that its Venezuelan subsidiary had been substantially liquidated. In connection with the substantial liquidation, Mattel recognized a $59.0 million loss in other non-operating expense, net in the consolidated statements of operations related to the associated cumulative translation adjustments.
Argentina Operations
Effective July 1, 2018, Mattel accounted for Argentina as a highly inflationary economy, as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning July 1, 2018, Mattel's Argentina subsidiary has designated the U.S. dollar as its functional currency. For the year ended December 31, 2018, Mattel’s Argentina subsidiary represented less than 1% of Mattel's consolidated net sales.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry specific guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance establishes a five-step model to achieve that core principle and also requires additional disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. For additional information, see "Note 7 to the Consolidated Financial Statements—Revenues."
In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Mattel adopted ASU 2016-16 on January 1, 2018 and recognized a cumulative effect increase to the opening balance of its retained earnings of $9.4 million. For additional information, see "Note 15 to the Consolidated Financial Statements—Income Taxes."
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires entities that sponsor defined benefit plans to (i) present service cost within operations, if such a subtotal is presented, (ii) other components of net benefit costs should be presented separately outside of income from operations, if such a subtotal is presented, and (iii) only the service cost component should be capitalized, when applicable. If a separate line item is not used, the line item in the income statement where the other components of net benefit costs are included must be disclosed. Further, gains and losses from curtailments and settlements, and the cost of certain termination benefits should be reported in the same manner as other components of net benefit cost. Mattel adopted ASU 2017-07 on January 1, 2018 and retrospectively restated its interim and annual results accordingly. The retrospective adoption of ASU 2017-07 did not have a material impact on Mattel’s consolidated financial statements, as discussed in "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans."
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Mattel early adopted ASU 2018-15 in the fourth quarter of 2018 and elected to apply the amendments prospectively to implementation costs incurred
after the date of adoption. The adoption of ASU 2018-15 did not have a material impact on Mattel's consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires a lessee to recognize a lease asset and lease liability on its balance sheet for all leases with a term greater than 12 months. Mattel will adopt ASU 2016-02 and its related amendments on January 1, 2019 using the modified retrospective transition method, and record a cumulative effect adjustment in the first quarter of 2019. Prior periods will not be retrospectively adjusted and will continue to be reported under the accounting standards in effect for the periods. Mattel expects the adoption of ASU 2016-02 will have a material impact on its consolidated balance sheet.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which expands the hedging strategies eligible for hedge accounting and changes both how companies assess hedge effectiveness and presentation and disclosure requirements. Mattel will adopt ASU 2017-12 on January 1, 2019 and does not expect the adoption to have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits the reclassification of disproportionate tax effects in accumulated other comprehensive income caused by the U.S. Tax Act to retained earnings. Mattel will adopt ASU 2018-02 on January 1, 2019 and does not expect the adoption to have a material impact on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of current stock compensation recognition standards to include share-based payment transactions for acquiring goods and services from nonemployees. Mattel will adopt ASU 2018-07 on January 1, 2019 and does not expect the adoption to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: 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 will become 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 will be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments will be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. In addition, early adoption of any removed or modified disclosures, but delayed adoption of any additional disclosures until their effective date, is permitted. Mattel is currently evaluating the impact of the adoption of ASU 2018-13 on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: 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 October 2018, the FASB issued ASU 2018-17, Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities, which improves the accounting for variable interest entities by considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 will become effective for interim and annual reporting periods beginning on January 1, 2020. Early adoption is permitted. The amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Mattel is currently evaluating the impact of the adoption of ASU 2018-17 on its consolidated financial statements.
Note 2—Property, Plant, and Equipment
Property, plant, and equipment, net includes the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Land
|
$
|
25,023
|
|
|
$
|
25,114
|
|
Buildings
|
294,227
|
|
|
303,495
|
|
Machinery and equipment
|
875,308
|
|
|
902,861
|
|
Software
|
400,488
|
|
|
384,568
|
|
Tools, dies, and molds
|
831,743
|
|
|
887,442
|
|
Capital leases
|
23,927
|
|
|
24,279
|
|
Leasehold improvements
|
240,636
|
|
|
213,238
|
|
|
2,691,352
|
|
|
2,740,997
|
|
Less: accumulated depreciation
|
(2,033,757
|
)
|
|
(1,955,712
|
)
|
|
$
|
657,595
|
|
|
$
|
785,285
|
|
During 2017, Mattel recorded an asset impairment charge of $21.2 million within other selling and administrative expenses in the consolidated statements of operations to reduce the carrying value of certain retail store leasehold improvements to their estimated fair value, which was determined based on discounted expected future cash flows. Additionally, Mattel recorded an asset impairment charge of $20.6 million in 2017 within cost of sales in the consolidated statements of operations for capitalized costs related to tools, dies, and molds for discontinued products which were no longer considered to be recoverable.
Note 3—Goodwill and Other Intangibles
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.
The change in the carrying amount of goodwill by operating segment for 2018 and 2017 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America and American Girl operating segments selling those brands, thereby causing a foreign currency translation impact for these operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
American Girl
|
|
Total
|
|
(In thousands)
|
Balance at December 31, 2016
|
$
|
730,139
|
|
|
$
|
445,008
|
|
|
$
|
212,481
|
|
|
$
|
1,387,628
|
|
Currency Exchange Rate Impact
|
2,895
|
|
|
7,144
|
|
|
(998
|
)
|
|
9,041
|
|
Balance at December 31, 2017
|
733,034
|
|
|
452,152
|
|
|
211,483
|
|
|
1,396,669
|
|
Dispositions
|
—
|
|
|
—
|
|
|
(4,018
|
)
|
|
(4,018
|
)
|
Currency Exchange Rate Impact
|
(1,800
|
)
|
|
(4,533
|
)
|
|
106
|
|
|
(6,227
|
)
|
Balance at December 31, 2018
|
$
|
731,234
|
|
|
$
|
447,619
|
|
|
$
|
207,571
|
|
|
$
|
1,386,424
|
|
In the third quarter of 2018, Mattel performed its annual impairment tests and determined that goodwill was not impaired since each reporting unit's fair value exceeded its carrying value.
Other Intangibles
Identifiable intangibles were $587.5 million, net of accumulated amortization of $207.9 million, and $639.2 million, net of accumulated amortization of $168.8 million, as of December 31, 2018 and 2017, respectively. The estimated future amortization expense is as follows:
|
|
|
|
|
|
Amortization Expense
|
|
(In thousands)
|
2019
|
$
|
40,013
|
|
2020
|
39,496
|
|
2021
|
38,316
|
|
2022
|
37,633
|
|
2023
|
37,153
|
|
Mattel had no nonamortizable intangible assets as of and for the year ended of December 31, 2018. Prior to 2018, Mattel tested nonamortizable intangible assets, including trademarks and trade names, for impairment annually in the third quarter and whenever events or changes in circumstances indicated that the carrying values may have exceeded the fair values.
During the third quarter of 2017, Mattel discontinued the use of a trademark which resulted in an asset impairment charge of $9.2 million. The asset impairment charge was recorded within other selling and administrative expenses in the consolidated statements of operations.
Mattel performed its annual impairment assessment during the third quarter of 2017 and determined that its remaining nonamortizable intangible asset was not impaired. In the fourth quarter of 2017, Mattel concluded that a triggering event had occurred related to its nonamortizable intangible asset, and performed an impairment analysis. Based on the result of the interim impairment analysis, it was determined that the nonamortizable intangible asset was not impaired, but that the intangible asset was no longer nonamortizable, and should be amortized starting in the fourth quarter of 2017.
Mattel also 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 determined that its amortizable intangible assets were not impaired during 2017. During 2018, Mattel discontinued the use of certain brands and products, which resulted in asset impairments of $4.3 million. Mattel's remaining amortizable intangible assets were not impaired during the year ended December 31, 2018.
Note 4—Employee Benefit Plans
Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all employees of these companies. These plans include defined benefit pension plans, defined contribution retirement plans, postretirement benefit plans, and deferred compensation and excess benefit plans. In addition, Mattel makes contributions to government-mandated retirement plans in countries outside the U.S. where its employees work.
A summary of retirement plan expense, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Defined benefit pension plans
|
$
|
12,366
|
|
|
$
|
7,428
|
|
|
$
|
13,999
|
|
Defined contribution retirement plans
|
35,318
|
|
|
38,508
|
|
|
37,661
|
|
Postretirement benefit plans
|
(2,148
|
)
|
|
963
|
|
|
1,343
|
|
Deferred compensation and excess benefit plans
|
(2,599
|
)
|
|
10,015
|
|
|
5,093
|
|
|
$
|
42,937
|
|
|
$
|
56,914
|
|
|
$
|
58,096
|
|
In accordance with ASU 2017-07, which went into effect for interim and annual reporting periods beginning on January 1, 2018, Mattel's service cost component is recorded within operating (loss) income, presented in the same line items as other employee compensation costs arising from employee services rendered in the period, while other components of net periodic pension cost and postretirement benefit cost are recorded in other non-operating expense, net. Prior period amounts have been retrospectively adjusted, which resulted in a reclassification of $3.4 million and $8.4 million of expense, net from other selling and administrative expenses to other non-operating expense, net for the year ended December 31, 2017 and 2016, respectively.
Defined Benefit Pension and Postretirement Benefit Plans
Mattel provides defined benefit pension plans for eligible domestic employees, which are intended to comply with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Some of Mattel’s foreign subsidiaries have defined benefit pension plans covering substantially all of their eligible employees. Mattel funds these plans in accordance with the terms of the plans and local statutory requirements, which differ for each of the countries in which the subsidiaries are located. Mattel also has unfunded postretirement health insurance plans covering certain eligible domestic employees.
A summary of the components of Mattel’s net periodic benefit cost (credit) and other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
Postretirement Benefit Plans
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Net periodic benefit cost (credit):
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
4,223
|
|
|
$
|
4,045
|
|
|
$
|
5,557
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
52
|
|
Interest cost
|
18,117
|
|
|
17,961
|
|
|
24,526
|
|
|
208
|
|
|
812
|
|
|
1,143
|
|
Expected return on plan assets
|
(22,508
|
)
|
|
(23,072
|
)
|
|
(25,726
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
29
|
|
|
29
|
|
|
461
|
|
|
(2,037
|
)
|
|
—
|
|
|
—
|
|
Recognized actuarial loss (gain)
|
8,518
|
|
|
8,362
|
|
|
6,994
|
|
|
(320
|
)
|
|
149
|
|
|
148
|
|
Settlement loss
|
3,248
|
|
|
—
|
|
|
1,772
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailment loss
|
739
|
|
|
103
|
|
|
415
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (credit)
|
$
|
12,366
|
|
|
$
|
7,428
|
|
|
$
|
13,999
|
|
|
$
|
(2,148
|
)
|
|
$
|
963
|
|
|
$
|
1,343
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
$
|
(4,433
|
)
|
|
$
|
46
|
|
|
$
|
(1,531
|
)
|
|
$
|
(276
|
)
|
|
$
|
(2,746
|
)
|
|
$
|
(1,833
|
)
|
Prior service cost (credit)
|
114
|
|
|
—
|
|
|
505
|
|
|
—
|
|
|
(16,261
|
)
|
|
—
|
|
Amortization of prior service (cost) credit
|
(29
|
)
|
|
(29
|
)
|
|
(461
|
)
|
|
2,037
|
|
|
—
|
|
|
—
|
|
Total recognized in other comprehensive (loss) income (a)
|
$
|
(4,348
|
)
|
|
$
|
17
|
|
|
$
|
(1,487
|
)
|
|
$
|
1,761
|
|
|
$
|
(19,007
|
)
|
|
$
|
(1,833
|
)
|
Total recognized in net periodic benefit cost (credit) and other comprehensive (loss) income
|
$
|
8,018
|
|
|
$
|
7,445
|
|
|
$
|
12,512
|
|
|
$
|
(387
|
)
|
|
$
|
(18,044
|
)
|
|
$
|
(490
|
)
|
|
|
(a)
|
Amounts exclude related tax expense of $2.1 million, $4.5 million, and $1.2 million, during 2018, 2017, and 2016, respectively, which are also included in other comprehensive (loss) income.
|
Net periodic benefit cost (credit) for Mattel’s domestic defined benefit pension and postretirement benefit plans was calculated on January 1 of each year using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
Defined benefit pension plans:
|
|
|
|
|
|
Discount rate
|
3.4
|
%
|
|
3.9
|
%
|
|
4.2
|
%
|
Weighted-average rate of future compensation increases
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Long-term rate of return on plan assets
|
6.0
|
%
|
|
6.3
|
%
|
|
6.5
|
%
|
Postretirement benefit plans:
|
|
|
|
|
|
Discount rate
|
3.4
|
%
|
|
3.9
|
%
|
|
4.2
|
%
|
Annual increase in Medicare Part B premium
|
6.0
|
%
|
|
6.0
|
%
|
|
6.0
|
%
|
Health care cost trend rate:
|
|
|
|
|
|
Pre-65
|
7.3
|
%
|
|
7.0
|
%
|
|
7.0
|
%
|
Post-65
|
7.3
|
%
|
|
7.8
|
%
|
|
8.3
|
%
|
Ultimate cost trend rate:
|
|
|
|
|
|
Pre-65
|
4.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
Post-65
|
4.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
Year that the rate reaches the ultimate cost trend rate:
|
|
|
|
|
|
Pre-65
|
2025
|
|
|
2024
|
|
|
2023
|
|
Post-65
|
2025
|
|
|
2024
|
|
|
2024
|
|
Discount rates, weighted-average rates of future compensation increases, and long-term rates of return on plan assets for Mattel’s foreign defined benefit pension plans differ from the assumptions used for Mattel’s domestic defined benefit pension plans due to differences in local economic conditions in the locations where the non-U.S. plans are based. The rates shown in the preceding table are indicative of the weighted-average rates of all of Mattel’s defined benefit pension plans given the relative insignificance of the foreign plans to the consolidated total.
The estimated net actuarial loss for the domestic defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2019 is $6.3 million. The estimated net actuarial gain and prior service credit for the domestic postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit credit in 2019 is $2.4 million.
Mattel used a measurement date of December 31, 2018 for its defined benefit pension and postretirement benefit plans. A summary of the changes in benefit obligation and plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
Postretirement
Benefit Plans
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
$
|
639,319
|
|
|
$
|
605,851
|
|
|
$
|
7,752
|
|
|
$
|
27,614
|
|
Service cost
|
4,223
|
|
|
4,045
|
|
|
1
|
|
|
2
|
|
Interest cost
|
18,117
|
|
|
17,961
|
|
|
208
|
|
|
812
|
|
Impact of currency exchange rate changes
|
(7,793
|
)
|
|
12,932
|
|
|
—
|
|
|
—
|
|
Actuarial (gain) loss
|
(34,214
|
)
|
|
32,817
|
|
|
(596
|
)
|
|
(2,597
|
)
|
Benefits paid
|
(50,211
|
)
|
|
(34,314
|
)
|
|
(1,164
|
)
|
|
(1,818
|
)
|
Plan amendments
|
809
|
|
|
27
|
|
|
—
|
|
|
(16,261
|
)
|
Settlements
|
(2,748
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefit obligation, end of year
|
$
|
567,502
|
|
|
$
|
639,319
|
|
|
$
|
6,201
|
|
|
$
|
7,752
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
$
|
460,952
|
|
|
$
|
433,780
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
(18,162
|
)
|
|
47,727
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
18,216
|
|
|
4,807
|
|
|
1,164
|
|
|
1,818
|
|
Impact of currency exchange rate changes
|
(5,554
|
)
|
|
8,952
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(50,211
|
)
|
|
(34,314
|
)
|
|
(1,164
|
)
|
|
(1,818
|
)
|
Settlements
|
(3,312
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Plan assets at fair value, end of year
|
$
|
401,929
|
|
|
$
|
460,952
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net Amount Recognized in Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
Funded status, end of year
|
$
|
(165,573
|
)
|
|
$
|
(178,367
|
)
|
|
$
|
(6,201
|
)
|
|
$
|
(7,752
|
)
|
Current accrued benefit liability
|
$
|
(4,395
|
)
|
|
$
|
(16,180
|
)
|
|
$
|
(1,090
|
)
|
|
$
|
(1,400
|
)
|
Noncurrent accrued benefit liability
|
(161,178
|
)
|
|
(162,187
|
)
|
|
(5,111
|
)
|
|
(6,352
|
)
|
Net amount recognized
|
$
|
(165,573
|
)
|
|
$
|
(178,367
|
)
|
|
$
|
(6,201
|
)
|
|
$
|
(7,752
|
)
|
Amounts Recognized in Accumulated Other Comprehensive Loss (a):
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
238,862
|
|
|
$
|
243,295
|
|
|
$
|
(3,071
|
)
|
|
$
|
(2,795
|
)
|
Prior service cost (credit)
|
220
|
|
|
135
|
|
|
(14,224
|
)
|
|
(16,261
|
)
|
|
$
|
239,082
|
|
|
$
|
243,430
|
|
|
$
|
(17,295
|
)
|
|
$
|
(19,056
|
)
|
|
|
(a)
|
Amounts exclude related tax benefits of $79.0 million and $81.2 million for December 31, 2018 and 2017, respectively, which are also included in accumulated other comprehensive loss.
|
The accumulated benefit obligation differs from the projected benefit obligation in that it assumes future compensation levels will remain unchanged. Mattel’s accumulated benefit obligation for its defined benefit pension plans as of 2018 and 2017 totaled $549.7 million and $618.5 million, respectively.
The assumptions used in determining the projected and accumulated benefit obligations of Mattel’s domestic defined benefit pension and postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
Defined benefit pension plans:
|
|
|
|
Discount rate
|
4.1
|
%
|
|
3.4
|
%
|
Weighted-average rate of future compensation increases
|
N/A
|
|
|
N/A
|
|
Postretirement benefit plans:
|
|
|
|
Discount rate
|
4.1
|
%
|
|
3.4
|
%
|
Annual increase in Medicare Part B premium
|
6.0
|
%
|
|
6.0
|
%
|
Health care cost trend rate:
|
|
|
|
Pre-65
|
7.0
|
%
|
|
7.0
|
%
|
Post-65
|
6.8
|
%
|
|
7.8
|
%
|
Ultimate cost trend rate:
|
|
|
|
Pre-65
|
4.5
|
%
|
|
4.5
|
%
|
Post-65
|
4.5
|
%
|
|
4.5
|
%
|
Year that the rate reaches the ultimate cost trend rate:
|
|
|
|
Pre-65
|
2025
|
|
|
2024
|
|
Post-65
|
2025
|
|
|
2024
|
|
A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year would not materially impact the postretirement benefit obligation as of December 31, 2018, or the service and interest cost recognized for 2018.
The estimated future benefit payments for Mattel’s defined benefit pension and postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
Defined Benefit
Pension Plans
|
|
Postretirement
Benefit Plans
|
|
(In thousands)
|
2019
|
$
|
45,824
|
|
|
$
|
1,090
|
|
2020
|
36,654
|
|
|
880
|
|
2021
|
36,388
|
|
|
770
|
|
2022
|
37,293
|
|
|
660
|
|
2023
|
35,823
|
|
|
550
|
|
2024–2026
|
180,611
|
|
|
1,920
|
|
Mattel expects to make cash contributions totaling approximately $6 million to its defined benefit pension and postretirement benefit plans in 2019, substantially all of which will be for benefit payments for its unfunded plans.
Mattel periodically commissions a study of the plans’ assets and liabilities to determine an asset allocation that would best match expected cash flows from the plans’ assets to expected benefit payments. Mattel monitors the returns earned by the plans’ assets and reallocates investments as needed. Mattel’s overall investment strategy is to achieve an adequately diversified asset allocation mix of investments that provides for both near-term benefit payments as well as long-term growth. The assets are invested in a combination of indexed and actively managed funds. The target allocations for Mattel’s domestic plan assets, which comprise 77% of Mattel’s total plan assets, are 42% in U.S. equities, 28% in non-U.S. equities, 20% in fixed income securities, and 10% in real estate securities. The U.S. equities are benchmarked against the S&P 500, and the non-U.S. equities are benchmarked against a combination of developed and emerging markets indices. Fixed income securities are long-duration bonds intended to closely match the duration of the liabilities and include U.S. government treasuries and agencies, corporate bonds from various industries, and mortgage-backed and asset-backed securities.
Mattel’s defined benefit pension plan assets are measured and reported in the financial statements at fair value using inputs, which are more fully described in "Note 11 to the Consolidated Financial Statements—Fair Value Measurements," as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
U.S. government and U.S. government agency securities
|
$
|
—
|
|
|
$
|
8,803
|
|
|
$
|
—
|
|
|
$
|
8,803
|
|
U.S. corporate debt instruments
|
—
|
|
|
45,714
|
|
|
—
|
|
|
45,714
|
|
International corporate debt instruments
|
—
|
|
|
13,034
|
|
|
—
|
|
|
13,034
|
|
Mutual funds
|
610
|
|
|
—
|
|
|
—
|
|
|
610
|
|
Money market funds
|
303
|
|
|
—
|
|
|
—
|
|
|
303
|
|
Other investments
|
—
|
|
|
7,964
|
|
|
—
|
|
|
7,964
|
|
Insurance "buy-in" policy
|
—
|
|
|
—
|
|
|
29,857
|
|
|
29,857
|
|
Collective trust funds (a):
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
|
|
|
|
|
|
|
|
69,699
|
|
International equity securities
|
|
|
|
|
|
|
|
|
|
176,103
|
|
International fixed income
|
|
|
|
|
|
|
|
|
|
14,752
|
|
Diversified funds
|
|
|
|
|
|
|
|
|
|
35,090
|
|
Total
|
$
|
913
|
|
|
$
|
75,515
|
|
|
$
|
29,857
|
|
|
$
|
401,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
U.S. government and U.S. government agency securities
|
$
|
—
|
|
|
$
|
5,101
|
|
|
$
|
—
|
|
|
$
|
5,101
|
|
U.S. corporate debt instruments
|
—
|
|
|
37,323
|
|
|
—
|
|
|
37,323
|
|
International corporate debt instruments
|
—
|
|
|
11,137
|
|
|
—
|
|
|
11,137
|
|
Mutual funds
|
611
|
|
|
—
|
|
|
—
|
|
|
611
|
|
Money market funds
|
1,975
|
|
|
—
|
|
|
—
|
|
|
1,975
|
|
Other investments
|
—
|
|
|
6,968
|
|
|
—
|
|
|
6,968
|
|
Insurance "buy-in" policy
|
—
|
|
|
—
|
|
|
33,553
|
|
|
33,553
|
|
Collective trust funds (a):
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
|
|
|
|
|
|
|
|
73,727
|
|
International equity securities
|
|
|
|
|
|
|
|
|
|
234,472
|
|
International fixed income
|
|
|
|
|
|
|
|
|
|
16,179
|
|
Diversified funds
|
|
|
|
|
|
|
|
|
|
39,906
|
|
Total
|
$
|
2,586
|
|
|
$
|
60,529
|
|
|
$
|
33,553
|
|
|
$
|
460,952
|
|
|
|
(a)
|
These investments consist of privately placed funds that are valued based on net asset value per share. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position and its related disclosures.
|
The fair value of collective trust funds are determined based on the net asset value per share held at year-end. The fair value of mutual funds, money market funds, U.S. government securities, U.S. government agency securities, and corporate debt instruments are determined based on quoted market prices or are estimated using pricing models with observable inputs or quoted prices of securities with similar characteristics.
In December 2017, Mattel entered into an insurance buy-in policy contract with a private limited life insurance company to insure a portion of the U.K. pension plan, covering approximately 40% of the total membership in the plan. The assets and liabilities with respect to insured pensioners are assumed to match for the purposes of ASC 715, Pension - Retirement Benefits (i.e. the full benefits have been insured). The initial value of the asset associated with this policy was equal to the premium paid to secure the policy, and is adjusted each reporting period for changes in interest rates, discount rates, and benefits paid. As the valuation of this asset is judgmental, and there are no observable inputs associated with the valuation, the buy-in contract is classified as Level 3 on the fair value hierarchy.
The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
Level 3
|
|
(in thousands)
|
Balance at December 31, 2016
|
$
|
—
|
|
Purchases, sales, and settlements (a)
|
33,155
|
|
Change in fair value
|
398
|
|
Balance at December 31, 2017
|
33,553
|
|
Purchases, sales, and settlements (b)
|
—
|
|
Change in fair value
|
(3,696
|
)
|
Balance at December 31, 2018
|
$
|
29,857
|
|
|
|
(a)
|
There were no sales or settlements of Level 3 assets, or transfers in or out of Level 3, for the year ended December 31, 2017.
|
|
|
(b)
|
There were no purchases, sales, or settlements of Level 3 assets, or transfers in or out of Level 3, for the year ended December 31, 2018.
|
Mattel’s defined benefit pension plan assets are not directly invested in Mattel common stock. Mattel believes that the long-term rate of return on plan assets of 6.0% as of December 31, 2018 is reasonable based on historical returns.
Defined Contribution Retirement Plans
Domestic employees are eligible to participate in a 401(k) savings plan, the Mattel, Inc. Personal Investment Plan (the "Plan"), sponsored by Mattel, which is a funded defined contribution plan intended to comply with ERISA’s requirements. Contributions to the Plan include voluntary contributions by eligible employees and employer automatic and matching contributions by Mattel. The Plan allows employees to allocate both their voluntary contributions and their employer automatic and matching contributions to a variety of investment funds, including a fund that is invested in Mattel common stock (the "Mattel Stock Fund"). Employees are not required to allocate any of their Plan account balance to the Mattel Stock Fund, allowing employees to limit or eliminate their exposure to market changes in Mattel’s stock price. Furthermore, the Plan limits the percentage of the employee’s total account balance that may be allocated to the Mattel Stock Fund to 25%. Employees may generally reallocate their account balances on a daily basis. However, pursuant to Mattel’s insider trading policy, employees classified as insiders and restricted personnel under Mattel’s insider trading policy are limited to certain periods in which they may make allocations into or out of the Mattel Stock Fund.
Certain non-U.S. employees participate in other defined contribution retirement plans with varying vesting and contribution provisions.
Deferred Compensation and Excess Benefit Plans
Mattel maintains a deferred compensation plan that permits certain officers and key employees to elect to defer portions of their compensation. The deferred compensation plan, together with certain contributions made by Mattel and participating employees to an excess benefit plan, earns various rates of return. The liability for these plans as of December 31, 2018 and 2017 was $68.3 million and $76.6 million, respectively, and is primarily included in other noncurrent liabilities in the consolidated balance sheets. Changes in the market value of the participant-selected investment options are recorded as retirement plan expense within other selling and administrative expenses in the consolidated statements of operations. Separately, Mattel has purchased group trust-owned life insurance contracts designed to assist in funding these programs. The cash surrender value of these policies, valued at $65.8 million and $67.9 million as of December 31, 2018 and 2017, respectively, are held in an irrevocable grantor trust, the assets of which are subject to the claims of Mattel’s creditors and are included in other noncurrent assets in the consolidated balance sheets.
Annual Incentive Compensation
Mattel has annual incentive compensation plans under which officers and key employees may earn incentive compensation based on Mattel’s performance and are subject to certain approvals of the Compensation Committee of the Board of Directors. For 2018, 2017, and 2016, $84.1 million, $19.4 million, and $16.5 million, respectively, was charged to other selling and administrative expenses for awards under these plans.
Long-Term Incentive Compensation
Mattel had three long-term incentive program ("LTIP") performance cycles in place in 2018: (i) a January 1, 2016—December 31, 2018 performance cycle, which was established by the Compensation Committee of the Board of Directors ("the Committee") in March 2016, (ii) a January 1, 2017—December 31, 2019 performance cycle, which was established by the Committee in March 2017, and (iii) a January 1, 2018—December 31, 2020 performance cycle, which was established by the Committee in April 2018.
For the January 1, 2016—December 31, 2018 LTIP performance cycle, Mattel granted Performance RSUs under the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan ("Amended 2010 Plan") to senior executives providing services to Mattel. Performance RSUs granted under this program are earned based on an initial target number with the final number of Performance RSUs payable being determined based on the product of the initial target number of Performance RSUs multiplied by a performance factor based on measurements of Mattel's performance with respect to (i) a cumulative three-year EPS target for the performance cycle (the "2016-2018 performance-related component") and (ii) Mattel's TSR for the three-year performance cycle relative to the TSR realized by companies comprising the S&P 500 as of the first day of the performance cycle (the "2016-2018 market-related component"), adjusted for dividends declared during the three-year performance cycle. The Performance RSUs also have dividend equivalent rights that are converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs are earned and paid in shares of Mattel common stock. For the January 1, 2016—December 31, 2018 LTIP performance cycle, no shares were earned relating to the 2016-2018 performance-related component or market-related component.
For the January 1, 2016—December 31, 2018 LTIP performance cycle, the weighted-average grant-date fair value of the performance-related and market-related components of the Performance RSUs were $32.60 and $5.10 per share, respectively, for 2018, 2017, and 2016. During 2018, Mattel did not recognize any compensation expense related to the 2016-2018 performance-related component and recognized minimal expense related to the 2016-2018 market-related component. During 2017, Mattel recognized compensation expense of $0.4 million related to the 2016-2018 market-related component. Mattel also reversed $2.8 million of expense related to the 2016-2018 performance-related component that was previously recognized in 2016, as it was determined that it was unlikely that performance shares would be earned for the performance cycle. During 2016, Mattel recognized compensation expense of $2.8 million related to the 2016-2018 performance-related component and $0.4 million related to the 2016-2018 market-related component.
For the January 1, 2017—December 31, 2019 LTIP performance cycle, Mattel granted Performance RSUs under the Amended 2010 Plan to senior executives providing services to Mattel. Performance RSUs granted under this program are earned based on the product of the initial target number of Performance RSUs multiplied by a performance factor based on a three-year average of annual achievements of Mattel's performance with respect to annual EPS targets for the performance cycle (the "2017-2019 performance-related component") and then adjusted upward or downward based on Mattel's TSR for the three-year performance cycle relative to the TSR realized by companies comprising the S&P 500 as of the first day of the performance cycle (the "2017-2019 market-related component"). The Performance RSUs under the 2017-2019 LTIP performance cycle have dividend equivalent rights that are converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs are earned and paid. For the 2017-2019 performance-related component, the range of possible outcomes is that between 0.1 million and 0.2 million shares could be earned. For the 2017-2019 market-related component, the possible outcomes range from an upward adjustment of 0.1 million shares to a downward adjustment of 0.1 million shares to the result of the performance-related component.
For the January 1, 2017—December 31, 2019 LTIP performance cycle, the weighted-average grant-date fair value of the performance-related and market-related components of the Performance RSUs were $13.24 and $1.46 per share, respectively, for 2018, and $21.60 and $1.46 per share, respectively, for 2017. During 2018, Mattel recognized $0.3 million of compensation expense related to the 2017-2019 performance-related component and recognized minimal expense related to the 2017-2019 market-related component. During 2017, Mattel did not recognize any compensation expense related to the 2017-2019 performance-related component, and recognized compensation expense of $0.2 million related to the 2017-2019 market-related component.
For the January 1, 2018—December 31, 2020 performance cycle, Mattel granted Performance RSUs under the Amended 2010 Plan to senior executives providing services to Mattel. Performance RSUs granted under this program are earned based on an initial target number with the final number of Performance RSUs payable being determined based on the product of the initial target number of Performance RSUs multiplied by a performance factor based on measurements of Mattel's performance with respect to (i) a cumulative three-year free cash flow target for the performance cycle and (ii) a TSR multiplier, which is based on Mattel’s three-year TSR relative to the TSR realized by companies comprised of the S&P 500 as of the first day of the performance cycle. The Performance RSUs also have dividend equivalent rights that are converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs are earned and paid in shares of Mattel common stock. For the 2018-2020 performance cycle, the range of possible outcomes is that between zero and 1.7 million shares could be earned.
For the January 1, 2018—December 31, 2020 LTIP performance cycle, the weighted-average grant-date fair value of the Performance RSUs was $15.08 per share for 2018. During 2018, Mattel recognized $2.7 million of compensation expense in connection with the 2018-2020 performance cycle.
Mattel determines the fair value of the performance-related components of its performance RSUs based on the closing market price of Mattel's common stock on the date of grant. It determines the fair value of the market-related components of its performance RSUs based on a Monte Carlo valuation methodology.
Note 5—Seasonal Financing and Debt
Seasonal Financing
On December 20, 2017, Mattel entered into a syndicated facility agreement (the "Credit Agreement"), as a borrower thereunder (in such capacity, the "Borrower"), along with certain of Mattel’s domestic subsidiaries, as additional borrowers thereunder (together with the Borrower, the "U.S. Borrowers"), Mattel Canada Inc. as a borrower thereunder (the "Canadian Borrower"), certain additional domestic and foreign subsidiaries of Mattel, as guarantors thereunder, Bank of America, N.A., as global administrative agent, collateral agent, Australian security trustee, and lender, and the other lenders and financial institutions 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 an asset based lending facility with aggregate commitments of $1.31 billion, subject to borrowing base capacity, and a revolving credit facility with $294.0 million in aggregate commitments secured by certain fixed assets and intellectual property of the U.S. Borrowers and certain equity interests in various subsidiaries of Mattel, subject to borrowing base capacity (the "Fixed Asset & IP Facility"). The senior secured revolving credit facilities will mature on June 1, 2021.
On March 28, 2018 and March 29, 2018, Mattel, Inc. and certain of its subsidiaries entered into various foreign joinder agreements to the Credit Agreement. The foreign joinder agreements join the relevant foreign borrowers and foreign lenders to the Credit Agreement, as contemplated therein, making portions of the senior secured revolving credit facilities available to other subsidiaries of Mattel, Inc. such that, together with the initial entry into the Credit Agreement, the senior secured revolving credit facilities are available to certain subsidiaries of Mattel, Inc., in their capacity as borrowers, located in the following jurisdictions: (i) the United States (the "U.S. Borrowers"), (ii) Canada (the "Canadian Borrower"), (iii) Germany, the Netherlands and the United Kingdom (the "European (GNU) Borrowers"), (iv) Spain (the "Spanish Borrower"), (v) France (the "French Borrower"), and (vi) Australia (the "Australian Borrower"), in each case through subfacilities in each such jurisdiction (each, a "Subfacility"). Through the initial Credit Agreement and the foreign joinder agreements, certain additional domestic and foreign subsidiaries of Mattel, Inc. are also parties to the Credit Agreement as guarantors of various obligations of the borrowers under the Credit Agreement as further described below.
On December 14, 2018, Mattel, Inc. entered into an amendment (the "Amendment") to the Credit Agreement, which included the expansion of eligibility criteria for accounts receivable and inventory included in the borrowing base. In support of the foregoing, two additional Mattel subsidiaries, Mattel Import Services, LLC ("MISL") and Mattel Finco Europe B.V. ("Mattel Finco") were added as borrowers to the Credit Agreement. The Credit Agreement allows for certain inventory located in the Czech Republic and the Netherlands to be included in the borrowing base. Additionally, certain accounts receivable with account debtors located in Italy and Poland, as well as other countries agreed upon with the Administrative Agent, may be purchased by Mattel Finco and added to the borrowing base in the future.
Borrowings under the senior secured revolving credit facilities will (i) be 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 will be 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. Outstanding letters of credit under the senior secured revolving credit facilities totaled approximately $89 million as of December 31, 2018.
The U.S. Borrowers, as well as certain U.S. subsidiaries of the Borrower (the "U.S. Guarantors"), are initially guaranteeing the obligations of all Borrowers under the senior secured revolving credit facilities. Additionally, the obligations of the Canadian Borrower, the French Borrower, the Spanish Borrower, the European (GNU) Borrowers and the Australian Borrower (collectively, the "Foreign Borrowers"), will respectively each be guaranteed by the obligations of the other Foreign Borrowers, as well as certain additional foreign subsidiaries ("Foreign Guarantors").
The U.S. Subfacility is secured by liens on substantially all of the U.S. Borrowers’ and the U.S. Guarantors’ accounts receivable and inventory (the "U.S. Current Assets Collateral"). The Canadian Subfacility is, and the French Subfacility, the Spanish Subfacility, the European (GNU) Subfacility, and the Australian Subfacility will be, each secured by a first priority lien on (i) the accounts receivable and inventory of the applicable Foreign Borrower(s) and Foreign Guarantors under such facility, and (ii) the U.S. Current Assets Collateral. The Fixed Asset & IP Facility is secured by a first priority lien on certain owned real property in the U.S., certain U.S. trademarks and patents, and 100% of the equity interests in the U.S. Borrowers (aside from Mattel) and U.S. Guarantors, as well as 65% of the voting equity interests and 100% of the non-voting equity interests in Mattel Holdings Limited. Upon the additional Foreign Borrowers and Foreign Guarantors joining the Credit Agreement, the Fixed Asset & IP Facility will also be secured by 65% of the voting equity interests of such additional Foreign Borrowers and Foreign Guarantors that are directly owned by a U.S. Borrower or U.S. Guarantor. The net book value of the accounts receivable and inventory currently pledged as collateral under the senior secured revolving credit facilities was approximately $900 million as of December 31, 2018.
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.
Mattel had no borrowings under the senior secured revolving credit facilities as of December 31, 2018 and 2017. Since the execution of the Credit Agreement, the fixed charge coverage ratio covenant has not been in effect as no event of default occurred and as Mattel's excess availability was greater than $100 million and the Availability Threshold. As of December 31, 2018 and 2017, 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.
To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines. As of December 31, 2018, foreign credit lines totaled approximately $20 million. Mattel expects to extend the majority of these credit lines throughout 2019.
Mattel believes its cash on hand, amounts available under the senior secured revolving credit facilities, and its foreign credit lines will be adequate to meet its seasonal financing requirements in 2019.
Additionally, sales of foreign receivables occur periodically to finance seasonal working capital requirements. As of December 31, 2018, there were no outstanding amounts of accounts receivable that were sold under international factoring arrangements. As of December 31, 2017, there were approximately $19 million of outstanding accounts receivable that were sold under international factoring arrangements, which were excluded from Mattel’s consolidated balance sheets.
Short-Term Borrowings
As of December 31, 2018, Mattel had no borrowings outstanding under the senior secured revolving credit facilities and $4.2 million of foreign short-term bank loans outstanding. As of December 31, 2017, Mattel had no borrowings outstanding under the senior secured revolving credit facilities and no foreign short-term bank loans outstanding.
During 2018 and 2017, Mattel had average borrowings under the senior secured revolving credit facilities and other short-term borrowings of $126.2 million and $811.5 million, respectively, to help finance its seasonal working capital requirements. The weighted-average interest rate on borrowings under the senior secured revolving credit facilities and other short-term borrowings during 2018 and 2017 was 3.9% and 1.6%, respectively. Mattel's average borrowings on its foreign short-term bank loans were not material during 2018 and 2017.
Long-Term Debt
In December 2017, Mattel issued $1.00 billion aggregate principal amount of 6.75% senior unsecured notes due December 31, 2025 ("2017 Senior Notes"). The 2017 Senior Notes were issued pursuant to an indenture, dated December 20, 2017, among Mattel, the guarantors named therein and MUFG Union Bank, N.A., as Trustee (the "Indenture"). Interest on the 2017 Senior Notes is payable semi-annually in arrears on June 30 and December 31 of each year, beginning on June 30, 2018. Mattel may redeem all or part of the 2017 Senior Notes at any time or from time to time prior to December 31, 2020 at its option, at a redemption price equal to 100% of the principal amount, plus a "make whole" premium, plus accrued and unpaid interest on the 2017 Senior Notes being redeemed to, but excluding, the redemption date. Mattel may also redeem up to 40% of the principal amount of the 2017 Senior Notes at any time or from time to time prior to December 31, 2020 at its option, at a redemption price equal to 106.75% of the principal amount, plus accrued and unpaid interest on the 2017 Senior Notes being redeemed to, but excluding, the redemption date, with the net cash proceeds of sales of one or more equity offerings by Mattel or any direct or indirect parent of Mattel. Mattel may redeem all or part of the 2017 Senior Notes at any time or from time to time on or after December 31, 2020, at its option, at a redemption price including a call premium that varies (from 0% to 5.063%) depending on the year of redemption, plus accrued and unpaid interest on the 2017 Senior Notes being redeemed to, but excluding, the redemption date.
The 2017 Senior Notes are Mattel’s and the guarantors’ senior unsecured obligations. The 2017 Senior Notes are guaranteed by Mattel's existing and, subject to certain exceptions, future wholly-owned domestic restricted subsidiaries that guarantee Mattel’s new senior secured revolving credit facilities or certain other indebtedness. Under the terms of the Indenture, the 2017 Senior Notes rank equally in right of payment with all of Mattel’s existing and future senior debt, including Mattel’s Existing Notes (as defined in the Indenture) and borrowings under the new senior secured revolving credit facilities, and rank senior in right of payment to Mattel's existing and future debt and other obligations that expressly provide for their subordination to the 2017 Senior Notes. The 2017 Senior Notes are structurally subordinated to all of the existing and future liabilities, including trade payables, of the Mattel’s subsidiaries that do not guarantee the 2017 Senior Notes (including the Canadian Subfacility, the French Subfacility, the Spanish Subfacility, the European (GNU) Subfacility and the Australian Subfacility of the new senior secured revolving credit facilities and are effectively subordinated to Mattel’s and the guarantors’ existing and future senior secured debt to the extent of the value of the collateral securing such debt (including borrowings under the new senior secured revolving credit facilities). The guarantees are, with respect to the assets of the guarantors of the 2017 Senior Notes, structurally senior to all of Mattel’s existing indebtedness, future indebtedness or other liabilities that are not guaranteed by such guarantors, including Mattel’s obligations under the Existing Notes.
The Indenture contains covenants that limit Mattel’s (and some of its subsidiaries’) ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make investments in unrestricted subsidiaries; (iv) create liens; (v) enter into certain sale/leaseback transactions; (vi) merge or consolidate, or sell, transfer or otherwise dispose of substantially all of their assets; and (vii) designate subsidiaries as unrestricted.
In March 2018, Mattel repaid $250.0 million of its 2013 Senior Notes in connection with the scheduled maturity.
In May 2018, Mattel issued $500.0 million aggregate principal amount of its 6.75% senior unsecured notes due December 31, 2025 ("2018 Senior Notes"). The 2018 Senior Notes were issued pursuant to a supplemental indenture, dated May 31, 2018 (the "Supplemental Indenture"), as additional notes under the Indenture, dated December 20, 2017, pursuant to which Mattel previously issued $1.00 billion in aggregate principal amount of existing 6.75% Senior Notes due 2025. The 2018 Senior Notes formed a single series and trade interchangeably with the 2017 Senior Notes. The 2018 Senior Notes are guaranteed on a senior unsecured basis by all of Mattel's existing and future wholly-owned domestic restricted subsidiaries that are borrowers or guarantors under its senior secured revolving credit facilities.
In June 2018, Mattel used the net proceeds from the issuance of the 2018 Senior Notes, plus cash on hand, to redeem and retire all of its 2014 Senior Notes due May 6, 2019 at a redemption price equal to the principal amount, plus accrued and unpaid interest.
Mattel’s 2010 Senior Notes bear interest at fixed rates ranging from 4.35% to 6.20%, with a weighted-average interest rate of 5.28% as of December 31, 2018 and 2017. Mattel’s 2011 Senior Notes bear interest at a fixed rate of 5.45% as of December 31, 2018 and 2017. Mattel’s 2013 Senior Notes bear interest at fixed rates ranging from 1.70% to 3.15%, with a weighted-average interest rate of 2.43% as of December 31, 2018 and 2017. Mattel’s 2014 Senior Notes, 2016 Senior Notes, and 2017/2018 Senior Notes bear interest at a fixed rate of 2.35%, 2.35%, and 6.75%, respectively, as of December 31, 2018 and 2017.
Mattel’s long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
2010 Senior Notes due October 2020 and October 2040
|
$
|
500,000
|
|
|
$
|
500,000
|
|
2011 Senior Notes due November 2041
|
300,000
|
|
|
300,000
|
|
2013 Senior Notes due March 2018 and March 2023
|
250,000
|
|
|
500,000
|
|
2014 Senior Notes due May 2019
|
—
|
|
|
500,000
|
|
2016 Senior Notes due August 2021
|
350,000
|
|
|
350,000
|
|
2017/2018 Senior Notes due December 2025
|
1,500,000
|
|
|
1,000,000
|
|
Debt issuance costs and debt discount
|
(48,277
|
)
|
|
(26,881
|
)
|
|
2,851,723
|
|
|
3,123,119
|
|
Less: current portion
|
—
|
|
|
(250,000
|
)
|
Total long-term debt
|
$
|
2,851,723
|
|
|
$
|
2,873,119
|
|
The aggregate principal amount of long-term debt maturing in the next five years and thereafter is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
Senior
Notes
|
|
2011
Senior
Notes
|
|
2013
Senior
Notes
|
|
2016
Senior
Notes
|
|
2017/2018
Senior
Notes
|
|
Total
|
|
(In thousands)
|
2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2020
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
2021
|
—
|
|
|
—
|
|
|
—
|
|
|
350,000
|
|
|
—
|
|
|
350,000
|
|
2022
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
2023
|
—
|
|
|
—
|
|
|
250,000
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
Thereafter
|
250,000
|
|
|
300,000
|
|
|
—
|
|
|
—
|
|
|
1,500,000
|
|
|
2,050,000
|
|
|
$
|
500,000
|
|
|
$
|
300,000
|
|
|
$
|
250,000
|
|
|
$
|
350,000
|
|
|
$
|
1,500,000
|
|
|
$
|
2,900,000
|
|
Note 6—Stockholders’ Equity
Preference Stock
Mattel is authorized to issue up to 20.0 million shares of $0.01 par value preference stock, of which none is currently outstanding.
Preferred Stock
Mattel is authorized to issue up to 3.0 million shares of $1.00 par value preferred stock, of which none is currently outstanding.
Common Stock Repurchase Program
During 2018, 2017, and 2016, Mattel did not repurchase any shares of its common stock. 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 December 31, 2018, share repurchase authorizations of $203.0 million had not been executed. Repurchases will take place from time to time, depending on market conditions. Mattel’s share repurchase program has no expiration date.
Dividends
During 2018, Mattel did not pay any dividends to holders of its common stock. During 2017 and 2016, Mattel paid total dividends per share of $0.91 and $1.52, respectively, to holders of its common stock. The Board of Directors declared the dividends, if any, on a quarterly basis, and Mattel paid the dividends during the quarters in which the dividends were declared, if applicable. The payment of dividends on common stock is at the discretion of the Board of Directors and is subject to customary limitations. Dividend payments were $312.0 million and $518.5 million in 2017 and 2016, respectively.
Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
|
Derivative
Instruments
|
|
Available-for-Sale Security
|
|
Defined Benefit
Pension Plans
|
|
Currency
Translation
Adjustments
|
|
Total
|
|
(In thousands)
|
Accumulated Other Comprehensive Loss, Net of Tax, as of December 31, 2017
|
$
|
(21,098
|
)
|
|
$
|
(2,799
|
)
|
|
$
|
(143,213
|
)
|
|
$
|
(614,676
|
)
|
|
$
|
(781,786
|
)
|
Other comprehensive income (loss) before reclassifications
|
24,082
|
|
|
(3,748
|
)
|
|
(7,382
|
)
|
|
(106,651
|
)
|
|
(93,699
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
8,427
|
|
|
—
|
|
|
7,832
|
|
|
—
|
|
|
16,259
|
|
Net increase (decrease) in other comprehensive income (loss)
|
32,509
|
|
|
(3,748
|
)
|
|
450
|
|
|
(106,651
|
)
|
|
(77,440
|
)
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2018
|
$
|
11,411
|
|
|
$
|
(6,547
|
)
|
|
$
|
(142,763
|
)
|
|
$
|
(721,327
|
)
|
|
$
|
(859,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
Derivative
Instruments
|
|
Available-for-Sale Security
|
|
Defined Benefit
Pension Plans
|
|
Currency
Translation
Adjustments
|
|
Total
|
|
(In thousands)
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2016
|
$
|
17,469
|
|
|
$
|
3,149
|
|
|
$
|
(157,704
|
)
|
|
$
|
(805,943
|
)
|
|
$
|
(943,029
|
)
|
Other comprehensive (loss) income before reclassifications
|
(55,377
|
)
|
|
(5,948
|
)
|
|
7,812
|
|
|
132,294
|
|
|
78,781
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
16,810
|
|
|
—
|
|
|
6,679
|
|
|
58,973
|
|
|
82,462
|
|
Net (decrease) increase in other comprehensive (loss) income
|
(38,567
|
)
|
|
(5,948
|
)
|
|
14,491
|
|
|
191,267
|
|
|
161,243
|
|
Accumulated Other Comprehensive Loss, Net of Tax, as of December 31, 2017
|
$
|
(21,098
|
)
|
|
$
|
(2,799
|
)
|
|
$
|
(143,213
|
)
|
|
$
|
(614,676
|
)
|
|
$
|
(781,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
Derivative
Instruments
|
|
Available-for-Sale Security
|
|
Defined Benefit
Pension Plans
|
|
Currency
Translation
Adjustments
|
|
Total
|
|
(In thousands)
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2015
|
$
|
15,363
|
|
|
$
|
—
|
|
|
$
|
(159,858
|
)
|
|
$
|
(704,404
|
)
|
|
$
|
(848,899
|
)
|
Other comprehensive income (loss) before reclassifications
|
18,733
|
|
|
3,149
|
|
|
(4,154
|
)
|
|
(101,539
|
)
|
|
(83,811
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(16,627
|
)
|
|
—
|
|
|
6,308
|
|
|
—
|
|
|
(10,319
|
)
|
Net increase (decrease) in other comprehensive income (loss)
|
2,106
|
|
|
3,149
|
|
|
2,154
|
|
|
(101,539
|
)
|
|
(94,130
|
)
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2016
|
$
|
17,469
|
|
|
$
|
3,149
|
|
|
$
|
(157,704
|
)
|
|
$
|
(805,943
|
)
|
|
$
|
(943,029
|
)
|
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 Year Ended
|
|
Statements of Operations
Classification
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
(In thousands)
|
|
|
Derivative Instruments
|
|
|
|
|
|
|
|
(Loss) gain on foreign currency forward exchange contracts
|
$
|
(8,575
|
)
|
|
$
|
(16,717
|
)
|
|
$
|
17,101
|
|
|
Cost of sales
|
Tax effect of net (loss) gain
|
148
|
|
|
(93
|
)
|
|
(474
|
)
|
|
Provision for income taxes
|
|
$
|
(8,427
|
)
|
|
$
|
(16,810
|
)
|
|
$
|
16,627
|
|
|
Net (loss) income
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
Amortization of prior service credit (cost) (a)
|
$
|
2,008
|
|
|
$
|
(29
|
)
|
|
$
|
(461
|
)
|
|
Other non-operating expense, net
|
Recognized actuarial loss (a)
|
(8,198
|
)
|
|
(8,511
|
)
|
|
(7,142
|
)
|
|
Other non-operating expense, net
|
Curtailment loss
|
(739
|
)
|
|
(103
|
)
|
|
(415
|
)
|
|
Other non-operating expense, net
|
Settlement loss
|
(3,248
|
)
|
|
—
|
|
|
(1,772
|
)
|
|
Other non-operating expense, net
|
|
(10,177
|
)
|
|
(8,643
|
)
|
|
(9,790
|
)
|
|
|
Tax effect of net loss
|
2,345
|
|
|
1,964
|
|
|
3,482
|
|
|
Provision for income taxes
|
|
$
|
(7,832
|
)
|
|
$
|
(6,679
|
)
|
|
$
|
(6,308
|
)
|
|
Net (loss) income
|
Currency Translation Adjustments
|
|
|
|
|
|
|
|
Loss on discontinuation of Venezuelan operations
|
$
|
—
|
|
|
$
|
(58,973
|
)
|
|
$
|
—
|
|
|
Other non-operating expense, net
|
Tax effect of net loss (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
(58,973
|
)
|
|
$
|
—
|
|
|
Net (loss) income
|
|
|
(a)
|
The amortization of prior service credit (cost) and recognized actuarial loss are included in the computation of net periodic benefit cost. Refer to "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans" for additional information regarding Mattel’s net periodic benefit cost.
|
|
|
(b)
|
An income tax benefit was not realized related to the loss on discontinuation of Venezuelan operations.
|
Currency Translation Adjustments
For 2018, currency translation adjustments resulted in a net loss of $106.7 million, primarily due to the weakening of the Euro, British pound sterling, Russian ruble, and Brazilian real against the U.S. dollar. For 2017, currency translation adjustments resulted in a net gain of $191.3 million, primarily due to the strengthening of the Euro and the British pound sterling against the U.S. dollar and the recognition of a $59.0 million loss related to the discontinuation of Mattel's Venezuelan operations in other non-operating expense, net within the consolidated statements of operations. For 2016, currency translation adjustments resulted in a net loss of $101.5 million, primarily due to the weakening of the British pound sterling, Mexican peso, and Euro against the U.S. dollar, partially offset by the strengthening of the Brazilian real against the U.S. dollar.
Note 7—Revenues
Effective January 1, 2018, Mattel adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments (collectively, the "new revenue standards") using the modified retrospective transition method, which was applied to all contracts not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standards, while prior periods were not adjusted and continue to be reported under the accounting standards in effect for those periods.
The cumulative effect of the adoption of the new revenue standards on January 1, 2018 was reflected as a net reduction of $28.5 million to the opening balance of retained earnings associated with certain licensing contracts. The adoption of the new revenue standards did not have a material impact on Mattel's consolidated balance sheets or consolidated statements of operations as of or for the year ended December 31, 2018.
Revenue Recognition and Sales Adjustments
Substantially all of Mattel's revenues continue to be recognized upon shipment or upon receipt of finished goods by the customer, depending on the contract terms. Additionally, Mattel routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs, which can be either contractual or discretionary in nature, are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as customer sales volume. Mattel bases its estimates for these programs on agreed-upon customer contract terms, as well as historical experience. The costs of these programs are considered variable consideration and are recorded as sales adjustments that reduce gross sales in the period the related sale is recognized. Based on Mattel's analysis of the new revenue standards, revenue recognition from the sale of finished goods to customers, which represents substantially all of Mattel's revenues, was not impacted by the adoption of the new revenue standards.
Mattel also enters into symbolic and functional licensing arrangements, whereby the licensee pays Mattel royalties based on sales of licensed product, and in certain cases are subject to minimum guaranteed amounts. The timing of revenue recognition for certain of these licensing arrangements with minimum guarantees changed under the new revenue standards, which under the new revenue standards is based on the determination of whether the license of intellectual property ("IP") is symbolic, which includes the license of Mattel's brands, or functional, which includes the license of Mattel's completed television or streaming content.
Revenues from symbolic licenses of IP are recognized based on actual sales when Mattel expects royalties to exceed the minimum guarantee. For symbolic licensing arrangements in which Mattel does not expect royalties to exceed the minimum guarantee, an estimate of the royalties expected to be recouped is recognized on a straight-line basis over the license term.
Revenues from functional licenses of IP are recognized once the license period has commenced and the licensee has the ability to use the delivered content.
Disaggregated Revenues
For a presentation of Mattel's revenues disaggregated by segment, brand, and geography, see "Note 13 to the Consolidated Financial Statements—Segment Information."
Practical Expedient
Mattel applied the practical expedient prescribed in the new revenue standards and did not evaluate contracts of one year or less for the existence of a significant financing component. Multi-year contracts were not material.
Note 8—Share-Based Payments
Mattel Stock Option Plans
In May 2015, Mattel’s stockholders approved the Amended 2010 Plan. The 2010 Equity and Long-Term Compensation Plan was approved by Mattel's stockholders in May 2010 (the "2010 Plan"). Upon approval of the 2010 Plan, Mattel terminated its 2005 Equity Compensation Plan (the "2005 Plan"), except with respect to grants then outstanding under the 2005 Plan. All restricted stock unit ("RSU") awards made under the 2005 Plan have vested. Outstanding stock option grants under the 2005 Plan that have not expired or have not been terminated continue to be exercisable under the terms of their respective grant agreements. The terms of the Amended 2010 Plan are substantially similar to the terms of the 2010 Plan and the 2005 Plan.
Under the Amended 2010 Plan, Mattel has the ability to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, RSUs, dividend equivalent rights, performance awards, and shares of common stock to officers, employees, and other persons providing services to Mattel. Generally, options vest and become exercisable contingent upon the grantees’ continued employment or service with Mattel. Nonqualified stock options are granted at not less than 100% of the fair market value of Mattel’s common stock on the date of grant, expire no later than 10 years from the date of grant, and vest on a schedule determined by the Compensation Committee of the Board of Directors, generally during a period of 3 years from the date of grant. In the event of a retirement of an employee aged 55 years or older with 5 or more years of service, or the death or disability of an employee, that occurs in each case at least 6 months after the grant date, nonqualified stock options become fully vested. Time-vesting RSUs granted under the Amended 2010 Plan generally vest over a period of 3 years from the date of grant. In the event of the involuntary termination of an employee aged 55 years or older with 5 or more years of service, or the death or disability of an employee, that occurs at least 6 months after the grant date, RSUs become fully vested. The Amended 2010 Plan also contains provisions regarding grants of equity compensation to the non-employee members of the Board of Directors. The Amended 2010 Plan expires on March 26, 2025, except as to any grants then outstanding.
The number of shares of common stock available for grant under the Amended 2010 Plan is subject to an aggregate limit of the sum of (i) 90 million shares, (ii) the number of shares that remained available for issuance under the 2005 Plan on May 12, 2010, and (iii) any shares subject to awards outstanding under the 2005 Plan that on or after May 12, 2010 are forfeited or otherwise terminate or expire without the issuance of shares to the holder of the award. The Amended 2010 Plan is further subject to detailed share-counting rules. As a result of such share-counting rules, full-value grants such as grants of restricted stock or RSUs count against shares remaining available for grant at a higher rate than grants of stock options and stock appreciation rights. Each stock option or stock appreciation right grant is treated as using one available share for each share actually subject to such grant, whereas each restricted stock or RSU grant is treated as using three available shares for each share actually subject to such full-value grant. At December 31, 2018, there were approximately 19 million shares of common stock available for grant remaining under the Amended 2010 Plan.
Mattel recognized total share-based compensation expense related to stock options and RSUs (including Performance RSUs) of $48.9 million, $67.1 million, and $54.0 million during 2018, 2017, and 2016, respectively, which is included in other selling and administrative expenses in the consolidated statements of operations. As of December 31, 2018, total unrecognized compensation cost related to unvested share-based payments totaled $93.0 million and is expected to be recognized over a weighted-average period of 2.2 years.
Stock Options
Mattel recognized compensation expense of $8.4 million, $14.1 million, and $10.5 million for stock options during 2018, 2017, and 2016, respectively, which is included within other selling and administrative expenses in the consolidated statements of operations. There was no current year income tax benefit related to stock options during 2018 or 2017 as future tax benefits related to stock options were fully offset by a valuation allowance. Income tax benefits related to stock option activity during 2016 totaled $6.8 million.
In 2018, Mattel granted performance options under the Amended 2010 Plan to certain senior executives in connection with its April 26, 2018—April 26, 2021 and May 31, 2018—May 31, 2021 performance cycles. These performance options are earned at the initial target number of options granted based on achievement of a certain threshold of Mattel’s TSR for the three-year performance cycle relative to the TSR realized by companies comprising the S&P 500 as of the first day of the performance cycle. If this threshold is not met at the end of the three-year cycle, no shares are earned. For the performance options granted during 2018 that remain outstanding at December 31, 2018, the range of possible outcomes is that between zero and 1.3 million shares could be earned. The fair value of these performance options has been estimated at the grant dates using a Monte Carlo valuation methodology, and the weighted-average grant-date fair value of performance options granted during 2018 was $4.21.
The fair values of all other options granted have been estimated using the Black-Scholes valuation model. The expected life of the options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on historical exercise experience. Expected stock price volatility is based on the historical volatility of Mattel’s stock for a period approximating the expected life, the expected dividend yield is based on Mattel’s most recent actual annual dividend payout, and the risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues approximating the expected life. The weighted-average grant-date fair value of options granted during 2018, 2017, and 2016 was $5.46, $3.37, and $4.09, respectively.
The following weighted-average assumptions were used in determining the fair value of options granted:
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Expected life (in years)
|
5.1
|
|
|
5.0
|
|
|
5.0
|
|
Risk-free interest rate
|
2.8
|
%
|
|
1.8
|
%
|
|
1.1
|
%
|
Volatility factor
|
33.6
|
%
|
|
27.2
|
%
|
|
25.3
|
%
|
Dividend yield
|
—
|
%
|
|
4.0
|
%
|
|
4.7
|
%
|
The following is a summary of stock option information and weighted-average exercise prices for Mattel’s stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
(In thousands, except weighted-average exercise price)
|
Outstanding at January 1
|
25,233
|
|
|
$
|
26.56
|
|
|
19,316
|
|
|
$
|
28.71
|
|
|
17,900
|
|
|
$
|
27.39
|
|
Granted
|
3,379
|
|
|
15.41
|
|
|
7,776
|
|
|
21.05
|
|
|
3,498
|
|
|
32.67
|
|
Exercised
|
—
|
|
|
—
|
|
|
(84
|
)
|
|
21.22
|
|
|
(1,539
|
)
|
|
22.13
|
|
Forfeited
|
(4,209
|
)
|
|
23.06
|
|
|
(832
|
)
|
|
25.84
|
|
|
(388
|
)
|
|
26.77
|
|
Canceled
|
(2,383
|
)
|
|
26.99
|
|
|
(943
|
)
|
|
26.31
|
|
|
(155
|
)
|
|
36.87
|
|
Outstanding at December 31
|
22,020
|
|
|
$
|
25.47
|
|
|
25,233
|
|
|
$
|
26.56
|
|
|
19,316
|
|
|
$
|
28.71
|
|
Exercisable at December 31
|
16,051
|
|
|
$
|
28.10
|
|
|
14,038
|
|
|
$
|
29.08
|
|
|
9,851
|
|
|
$
|
29.83
|
|
The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of options exercised during 2018, 2017, and 2016 was $0, $0.5 million, and $15.8 million, respectively. At December 31, 2018, options outstanding and options exercisable had no intrinsic value, with a weighted-average remaining life of 5.5 years and 4.2 years, respectively. At December 31, 2018, stock options vested or expected to vest totaled 21.5 million shares, with no intrinsic value, weighted-average exercise price of $25.67, and weighted-average remaining life of 5.4 years. During 2018, approximately 4 million stock options vested. The total grant-date fair value of stock options vested during 2018, 2017, and 2016 was approximately $12 million, $14 million, and $13 million, respectively.
Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises. Cash received from stock options exercised during 2018, 2017, and 2016 was $0, $1.8 million, and $34.1 million, respectively.
Restricted Stock Units
RSUs are valued at the market value on the date of grant, adjusted by the present value of the expected dividends for RSUs that are not entitled to a dividend during the vest period. The expense for RSUs is evenly attributed to the periods in which the restrictions lapse, which is generally 3 years from the date of grant.
Compensation expense recognized related to grants of RSUs, excluding Performance RSUs, was $37.5 million, $55.2 million, and $40.2 million in 2018, 2017, and 2016, respectively, and is included within other selling and administrative expenses in the consolidated statements of operations. During 2018 and 2017, income tax expense related to RSUs was $2.0 million and $4.2 million, respectively, and future tax benefits related to RSUs were fully offset by a valuation allowance. Income tax benefits related to RSU activity during 2016 totaled $11.5 million.
The following is a summary of RSU information and weighted-average grant-date fair values for Mattel’s RSUs, excluding Performance RSUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
(In thousands, except weighted-average grant-date fair value)
|
Unvested at January 1
|
4,898
|
|
|
$
|
21.95
|
|
|
3,243
|
|
|
$
|
28.85
|
|
|
3,738
|
|
|
$
|
28.98
|
|
Granted
|
3,345
|
|
|
15.71
|
|
|
4,205
|
|
|
19.39
|
|
|
1,608
|
|
|
29.68
|
|
Vested
|
(2,048
|
)
|
|
21.02
|
|
|
(2,103
|
)
|
|
27.13
|
|
|
(1,756
|
)
|
|
30.25
|
|
Forfeited
|
(1,474
|
)
|
|
20.18
|
|
|
(447
|
)
|
|
23.57
|
|
|
(347
|
)
|
|
27.04
|
|
Unvested at December 31
|
4,721
|
|
|
$
|
17.22
|
|
|
4,898
|
|
|
$
|
21.95
|
|
|
3,243
|
|
|
$
|
28.85
|
|
At December 31, 2018, RSUs expected to vest totaled 4.1 million shares, with a weighted-average grant-date fair value of $17.31. The total grant-date fair value of RSUs vested during 2018, 2017, and 2016 was $43.2 million, $57.0 million, and $53.1 million, respectively.
In addition to the expense and share amounts described above, Mattel recognized amounts during 2018, 2017, and 2016 for Performance RSUs granted in connection with its January 1, 2018—December 31, 2020 LTIP, January 1, 2017—December 31, 2019 LTIP, and January 1, 2016—December 31, 2018 LTIP performance cycles, more fully described in "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans." During 2018 and 2017, there was no current year income tax benefit for Performance RSUs granted in connection with any of the performance cycles referenced above, as future tax benefits were fully offset by a valuation allowance. During 2016, income tax benefits totaled $1.2 million for Performance RSUs granted in connection with its January 1, 2016—December 31, 2018 LTIP performance cycle.
Note 9—Earnings Per Share
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Prior to June 30, 2018, certain of Mattel’s RSUs were considered participating securities because they contained nonforfeitable rights to dividend equivalents.
Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period had been distributed. Basic earnings per common share excludes dilution and is calculated by dividing net income allocable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net income allocable to common shares by the weighted average number of common shares for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
The following table reconciles earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands, except per share amounts)
|
Basic:
|
|
|
|
|
|
Net (loss) income
|
$
|
(533,299
|
)
|
|
$
|
(1,054,579
|
)
|
|
$
|
312,908
|
|
Less: Net (loss) income allocable to participating RSUs (a)
|
—
|
|
|
—
|
|
|
(1,377
|
)
|
Net (loss) income available for basic common shares
|
$
|
(533,299
|
)
|
|
$
|
(1,054,579
|
)
|
|
$
|
311,531
|
|
Weighted average common shares outstanding
|
345,012
|
|
|
343,564
|
|
|
341,480
|
|
Basic net (loss) income per common share
|
$
|
(1.55
|
)
|
|
$
|
(3.07
|
)
|
|
$
|
0.91
|
|
Diluted:
|
|
|
|
|
|
Net (loss) income
|
$
|
(533,299
|
)
|
|
$
|
(1,054,579
|
)
|
|
$
|
312,908
|
|
Less: Net (loss) income allocable to participating RSUs (a)
|
—
|
|
|
—
|
|
|
(1,377
|
)
|
Net (loss) income available for diluted common shares
|
$
|
(533,299
|
)
|
|
$
|
(1,054,579
|
)
|
|
$
|
311,531
|
|
Weighted average common shares outstanding
|
345,012
|
|
|
343,564
|
|
|
341,480
|
|
Weighted average common equivalent shares arising from:
|
|
|
|
|
|
Dilutive stock options and non-participating RSUs (b)
|
—
|
|
|
—
|
|
|
2,753
|
|
Weighted average number of common and potential common shares
|
345,012
|
|
|
343,564
|
|
|
344,233
|
|
Diluted net (loss) income per common share
|
$
|
(1.55
|
)
|
|
$
|
(3.07
|
)
|
|
$
|
0.91
|
|
|
|
(a)
|
For the twelve months ended December 31, 2018 and December 31, 2017, Mattel did not allocate its net loss to its participating RSUs as its participating RSUs are not obligated to share in the losses of the Company. As of July 1, 2018, Mattel no longer has participating RSUs.
|
|
|
(b)
|
Mattel was in a net loss position for the twelve months ended December 31, 2018 and December 31, 2017, and, accordingly, all outstanding nonqualified stock options and non-participating RSUs were excluded from the calculation of diluted earnings per common share because their effect would be antidilutive. Nonqualified stock options and nonparticipating RSUs totaling 8.5 million shares were excluded from the calculation of diluted net income per common share for the twelve months ended December 31, 2016 because their effect would be antidilutive.
|
Note 10—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. Additionally, Mattel 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. As of December 31, 2018 and 2017, Mattel held foreign currency forward exchange contracts with notional amounts of $962.1 million and $987.7 million, respectively.
The following table presents Mattel’s derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Prepaid expenses and other
current assets
|
|
$
|
12,122
|
|
|
$
|
2,175
|
|
Foreign currency forward exchange contracts
|
Other noncurrent assets
|
|
1,613
|
|
|
115
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
13,735
|
|
|
$
|
2,290
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Prepaid expenses and other
current assets
|
|
$
|
2,357
|
|
|
$
|
5,514
|
|
Total
|
|
|
$
|
16,092
|
|
|
$
|
7,804
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
(In thousands)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Accrued liabilities
|
|
$
|
954
|
|
|
$
|
15,970
|
|
Foreign currency forward exchange contracts
|
Other noncurrent liabilities
|
|
185
|
|
|
3,159
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
1,139
|
|
|
$
|
19,129
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Accrued liabilities
|
|
$
|
1,771
|
|
|
$
|
191
|
|
Total
|
|
|
$
|
2,910
|
|
|
$
|
19,320
|
|
The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated As Hedging Instruments
|
|
Consolidated Statements of
Operations Classification
|
|
For the Year Ended
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
(In thousands)
|
|
|
Foreign currency forward exchange contracts:
|
|
|
|
|
|
|
|
Amount of gains (losses) recognized in OCI
|
$
|
24,082
|
|
|
$
|
(55,377
|
)
|
|
$
|
18,733
|
|
|
|
Amount of (losses) gains reclassified from accumulated OCI to the consolidated statements of operations
|
(8,427
|
)
|
|
(16,810
|
)
|
|
16,627
|
|
|
Cost of sales
|
The net (losses) gains of $(8.4) million, $(16.8) million, and $16.6 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations during 2018, 2017, and 2016, respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated As Hedging Instruments
|
|
Consolidated Statements of
Operations Classification
|
|
For the Year Ended
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
(In thousands)
|
|
|
Amount of (loss) gain recognized in the consolidated statements of operations:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
$
|
(23,109
|
)
|
|
$
|
70,200
|
|
|
$
|
(11,056
|
)
|
|
Other non-operating expense, net
|
Foreign currency forward exchange contracts
|
(244
|
)
|
|
511
|
|
|
1,631
|
|
|
Cost of sales
|
Total
|
$
|
(23,353
|
)
|
|
$
|
70,711
|
|
|
$
|
(9,425
|
)
|
|
|
The net (losses) gains of $(23.4) million, $70.7 million, and $(9.4) million recognized in the consolidated statements of operations during 2018, 2017, and 2016, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.
Note 11—Fair Value Measurements
The following table presents information about Mattel’s assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of December 31, 2018 and 2017 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.
|
|
|
•
|
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.
|
Mattel’s financial assets and liabilities include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
16,092
|
|
|
$
|
—
|
|
|
$
|
16,092
|
|
Available-for-sale (b)
|
5,243
|
|
|
—
|
|
|
—
|
|
|
5,243
|
|
Total assets
|
$
|
5,243
|
|
|
$
|
16,092
|
|
|
$
|
—
|
|
|
$
|
21,335
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
2,910
|
|
|
$
|
—
|
|
|
$
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
7,804
|
|
|
$
|
—
|
|
|
$
|
7,804
|
|
Available-for-sale (b)
|
8,991
|
|
|
—
|
|
|
—
|
|
|
8,991
|
|
Total assets
|
$
|
8,991
|
|
|
$
|
7,804
|
|
|
$
|
—
|
|
|
$
|
16,795
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
19,320
|
|
|
$
|
—
|
|
|
$
|
19,320
|
|
|
|
(a)
|
The fair value of the foreign currency forward exchange contracts 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.
|
Non-Recurring Fair Value Measurements
Mattel tests its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable or that the carrying value may exceed its fair value.
During 2017, Mattel recorded impairment charges associated with its intangible assets and property, plant, and equipment.
As described in "Note 3 to the Consolidated Financial Statements—Goodwill and Other Intangibles," during the third quarter of 2017, Mattel discontinued the use of a trademark which resulted in an impairment charge of $9.2 million.
As described in "Note 2 to the Consolidated Financial Statements—Property, Plant, and Equipment," during the third and fourth quarter of 2017, Mattel recorded impairment charges of $21.2 million related to leasehold improvements within certain American Girl retail stores. The fair value of the asset group was determined based on the income approach, with inputs which are categorized as Level 3 on the fair value hierarchy, utilizing certain market participant assumptions. These inputs include revenue and profit forecasts and the discount rate. Further, Mattel recorded an impairment charge in the fourth quarter of 2017 of $20.6 million for capitalized costs related to tools, dies, and molds for discontinued products which were no longer considered to be recoverable. There was no remaining value attributed to the identified tools, dies, and molds subsequent to the impairment charge.
During the year ended December 31, 2018, Mattel fully impaired certain intangible assets and property, plant, and equipment of $18.2 million due to discontinued use. There was no remaining value attributed to these identified intangible assets and property, plant, and equipment as of December 31, 2018.
Other Financial Instruments
Mattel’s financial instruments include cash and equivalents, accounts receivable and payable, accrued liabilities, and short-term and long-term borrowings. The fair values of these instruments approximate their carrying values because of their short-term nature. Cash is 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, including the current portion, was $2.49 billion (compared to a carrying value of $2.90 billion) as of December 31, 2018 and $3.01 billion (compared to a carrying value of $3.15 billion) as of December 31, 2017. 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.
Note 12—Commitments and Contingencies
Leases
Mattel routinely enters into noncancelable lease agreements for premises and equipment used in the normal course of business. Certain of these leases include escalation clauses that adjust rental expense to reflect changes in price indices, as well as renewal options. In addition to minimum rental payments, certain of Mattel’s leases require additional payments to reimburse the lessors for operating expenses such as real estate taxes, maintenance, utilities, and insurance. Rental expense is recorded on a straight-line basis, including escalating minimum payments. The American Girl Place leases in Chicago, Illinois, Los Angeles, California, and New York, New York, and American Girl store leases in Alpharetta, Georgia, Bloomington, Minnesota, Charlotte, North Carolina, Columbus, Ohio, Dallas, Texas, Houston, Texas, Lone Tree, Colorado, Lynnwood, Washington, McLean, Virginia, Miami, Florida, Nashville, Tennessee, Natick, Massachusetts, Orlando, Florida, Overland Park, Kansas, Palo Alto, California, Hershey, Pennsylvania, and Scottsdale, Arizona also contain provisions for additional rental payments based on a percentage of the sales of each store after reaching certain sales benchmarks. Contingent rental expense is recorded in the period in which the contingent event becomes probable. During 2018, 2017, and 2016, contingent rental expense was not material.
The following table shows the future minimum obligations under lease commitments in effect at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
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 amounted to $127.1 million, $137.4 million, and $110.1 million for 2018, 2017, and 2016, respectively, net of sublease income of $3.0 million, $2.9 million, and $2.7 million in 2018, 2017, and 2016, respectively.
Commitments
In the normal course of business, Mattel enters into contractual arrangements to obtain and protect Mattel’s right to create and market certain products and for future purchases of goods and services to ensure availability and timely delivery. Such arrangements include royalty payments pursuant to licensing agreements and commitments primarily for future inventory purchases. Certain of these commitments routinely contain provisions for guarantees or minimum expenditures during the term of the contracts. Current and future commitments for guaranteed payments reflect Mattel’s focus on expanding its product lines through alliances with businesses in other industries.
Licensing and similar agreements in effect at December 31, 2018 contain provisions for future minimum payments as shown in the following table:
|
|
|
|
|
|
Licensing and
Similar
Agreements
|
|
(In thousands)
|
2019
|
$
|
112,495
|
|
2020
|
92,859
|
|
2021
|
45,289
|
|
2022
|
30,436
|
|
2023
|
1,201
|
|
Thereafter
|
—
|
|
|
$
|
282,280
|
|
Royalty expense for 2018, 2017, and 2016 was $224.0 million, $244.5 million, and $228.9 million, respectively.
The following table shows the future minimum obligations for purchases of inventory, services, and other as of December 31, 2018:
|
|
|
|
|
|
Other
Purchase
Obligations
|
|
(In thousands)
|
2019
|
$
|
314,936
|
|
2020
|
47,017
|
|
2021
|
32,640
|
|
2022
|
26,820
|
|
2023
|
26,895
|
|
Thereafter
|
—
|
|
|
$
|
448,308
|
|
Insurance
Mattel has a wholly-owned subsidiary, Far West Insurance Company, Ltd. ("Far West"), that was established to insure Mattel’s workers’ compensation, general, automobile, product liability, and property risks. Far West insures the first $1.0 million per occurrence for workers’ compensation risks, the first $0.5 million for general and automobile liability risks, the first $2.0 million per occurrence and $2.0 million per year for product liability risks, and up to $1.0 million per occurrence for property risks. Various insurance companies that have an "A" or better AM Best rating at the time the policies are purchased reinsure Mattel’s risk in excess of the amounts insured by Far West. Mattel’s liability for reported and incurred but not reported claims at December 31, 2018 and 2017 totaled $12.3 million and $12.9 million, respectively, and is included in other noncurrent liabilities in the consolidated balance sheets. Loss reserves are accrued based on Mattel’s estimate of the aggregate liability for claims incurred.
Litigation
Litigation Related to Carter Bryant and MGA Entertainment, Inc.
In April 2004, Mattel filed a lawsuit in Los Angeles County Superior Court against Carter Bryant ("Bryant"), a former Mattel design employee. The suit alleges that Bryant aided and assisted a Mattel competitor, MGA Entertainment, Inc. ("MGA"), during the time he was employed by Mattel, in violation of his contractual and other duties to Mattel. In September 2004, Bryant asserted counterclaims against Mattel, including counterclaims in which Bryant sought, as a putative class action representative, to invalidate Mattel’s Confidential Information and Proprietary Inventions Agreements with its employees. Bryant also removed Mattel’s suit to the United States District Court for the Central District of California. In December 2004, MGA intervened as a party-defendant in Mattel’s action against Bryant, asserting that its rights to Bratz properties are at stake in the litigation.
Separately, in November 2004, Bryant filed an action against Mattel in the United States District Court for the Central District of California. The action sought a judicial declaration that Bryant’s purported conveyance of rights in Bratz was proper and that he did not misappropriate Mattel property in creating Bratz.
In April 2005, MGA filed suit against Mattel in the United States District Court for the Central District of California. MGA’s action alleges claims of trade dress infringement, trade dress dilution, false designation of origin, unfair competition, and unjust enrichment. The suit alleges, among other things, that certain products, themes, packaging, and/or television commercials in various Mattel product lines have infringed upon products, themes, packaging, and/or television commercials for various MGA product lines, including Bratz. The complaint also asserts that various alleged Mattel acts with respect to unidentified retailers, distributors, and licensees have damaged MGA and that various alleged acts by industry organizations, purportedly induced by Mattel, have damaged MGA. MGA’s suit alleges that MGA has been damaged in an amount "believed to reach or exceed tens of millions of dollars" and further seeks punitive damages, disgorgement of Mattel’s profits and injunctive relief.
In June 2006, the three cases were consolidated in the United States District Court for the Central District of California. On July 17, 2006, the Court issued an order dismissing all claims that Bryant had asserted against Mattel, including Bryant’s purported counterclaims to invalidate Mattel’s Confidential Information and Proprietary Inventions Agreements with its employees, and Bryant’s claims for declaratory relief.
On January 12, 2007, Mattel filed an Amended Complaint setting forth counterclaims that included additional claims against Bryant as well as claims for copyright infringement, Racketeer Influenced and Corrupt Organizations ("RICO") violations, misappropriation of trade secrets, intentional interference with contract, aiding and abetting breach of fiduciary duty and breach of duty of loyalty, and unfair competition, among others, against MGA, its Chief Executive Officer Isaac Larian, certain MGA affiliates and an MGA employee. The RICO claim alleged that MGA stole Bratz and then, by recruiting and hiring key Mattel employees and directing them to bring with them Mattel confidential and proprietary information, unfairly competed against Mattel using Mattel’s trade secrets, confidential information, and key employees to build their business.
Mattel sought to try all of its claims in a single trial, but in February 2007, the Court decided that the consolidated cases would be tried in two phases, with the first trial to determine claims and defenses related to Mattel’s ownership of Bratz works and whether MGA infringed those works. On May 19, 2008, Bryant reached a settlement agreement with Mattel and is no longer a defendant in the litigation. In the public stipulation entered by Mattel and Bryant in connection with the resolution, Bryant agreed that he was and would continue to be bound by all prior and future Court Orders relating to Bratz ownership and infringement, including the Court’s summary judgment rulings.
The first phase of the first trial resulted in a unanimous jury verdict on July 17, 2008 in favor of Mattel. The jury found that almost all of the Bratz design drawings and other works in question were created by Bryant while he was employed at Mattel; that MGA and Isaac Larian intentionally interfered with the contractual duties owed by Bryant to Mattel, aided and abetted Bryant’s breaches of his duty of loyalty to Mattel, aided and abetted Bryant’s breaches of the fiduciary duties he owed to Mattel, and converted Mattel property for their own use. The same jury determined that defendants MGA, Larian, and MGA Entertainment (HK) Limited infringed Mattel’s copyrights in the Bratz design drawings and other Bratz works, and awarded Mattel total damages of approximately $100 million against the defendants. On December 3, 2008, the Court issued a series of orders rejecting MGA’s equitable defenses and granting Mattel’s motions for equitable relief, including an order enjoining the MGA party defendants from manufacturing, marketing, or selling certain Bratz fashion dolls or from using the "Bratz" name. The Court stayed its December 3, 2008 injunctive orders until further order of the Court.
The parties filed and argued additional motions for post-trial relief, including a request by MGA to enter judgment as a matter of law on Mattel’s claims in MGA’s favor and to reduce the jury’s damages award to Mattel. Mattel additionally moved for the appointment of a receiver. On April 27, 2009, the Court entered an order confirming that Bratz works found by the jury to have been created by Bryant during his Mattel employment were Mattel’s property and that hundreds of Bratz female fashion dolls infringe Mattel’s copyrights. The Court also upheld the jury’s award of damages in the amount of $100 million and ordered an accounting of post-trial Bratz sales. The Court further vacated the stay of the December 3, 2008 orders.
MGA appealed the Court’s equitable orders to the Court of Appeals for the Ninth Circuit. On December 9, 2009, the Ninth Circuit heard oral argument on MGA’s appeal and issued an order staying the District Court’s equitable orders pending a further order to be issued by the Ninth Circuit. On July 22, 2010, the Ninth Circuit vacated the District Court’s equitable orders. The Ninth Circuit stated that, because of several jury instruction errors it identified, a significant portion—if not all—of the jury verdict and damage award should be vacated.
In its opinion, the Ninth Circuit found that the District Court erred in concluding that Mattel’s Invention Agreement unambiguously applied to "ideas;" that it should have considered extrinsic evidence in determining the application of the agreement; and if the conclusion turns on conflicting evidence, it should have been up to the jury to decide. The Ninth Circuit also concluded that the District Judge erred in transferring the entire brand to Mattel based on misappropriated names and that the Court should have submitted to the jury, rather than deciding itself, whether Bryant’s agreement assigned works created outside the scope of his employment and whether Bryant’s creation of the Bratz designs and sculpt was outside of his employment. The Court then went on to address copyright issues which would be raised after a retrial, since Mattel "might well convince a properly instructed jury" that it owns Bryant’s designs and sculpt. The Ninth Circuit stated that the sculpt itself was entitled only to "thin" copyright protection against virtually identical works, while the Bratz sketches were entitled to "broad" protection against substantially similar works; in applying the broad protection, however, the Ninth Circuit found that the lower court had erred in failing to filter out all of the unprotectable elements of Bryant’s sketches. This mistake, the Court said, caused the lower court to conclude that all Bratz dolls were substantially similar to Bryant’s original sketches.
Judge Stephen Larson, who presided over the first trial, retired from the bench during the course of the appeal, and the case was transferred to Judge David O. Carter. After the transfer, Judge Carter granted Mattel leave to file a Fourth Amended Answer and Counterclaims which focused on RICO, trade secret and other claims, and added additional parties, and subsequently granted in part and denied in part a defense motion to dismiss those counterclaims.
Later, on August 16, 2010, MGA asserted several new claims against Mattel in response to Mattel’s Fourth Amended Answer and Counterclaims, including claims for alleged trade secret misappropriation, an alleged violation of RICO, and wrongful injunction. MGA alleged, in summary, that, for more than a decade dating back to 1992, Mattel employees engaged in a pattern of stealing alleged trade secret information from competitors "toy fair" showrooms, and then sought to conceal that alleged misconduct. Mattel moved to strike and/or dismiss these claims, as well as certain MGA allegations regarding Mattel’s motives for filing suit. The Court granted that motion as to the wrongful injunction claim, which it dismissed with prejudice, and as to the allegations about Mattel’s motives, which it struck. The Court denied the motion as to MGA’s trade secret misappropriation claim and its claim for violations of RICO.
The Court resolved summary judgment motions in late 2010. Among other rulings, the Court dismissed both parties’ RICO claims; dismissed Mattel’s claim for breach of fiduciary duty and portions of other claims as "preempted" by the trade secrets act; dismissed MGA’s trade dress infringement claims; dismissed MGA’s unjust enrichment claim; dismissed MGA’s common law unfair competition claim; and dismissed portions of Mattel’s copyright infringement claim as to "later generation" Bratz dolls.
Trial of all remaining claims began in early January 2011. During the trial, and before the case was submitted to the jury, the Court granted MGA’s motions for judgment as to Mattel’s claims for aiding and abetting breach of duty of loyalty and conversion. The Court also granted a defense motion for judgment on portions of Mattel’s claim for misappropriation of trade secrets relating to thefts by former Mattel employees located in Mexico.
The jury reached verdicts on the remaining claims in April 2011. In those verdicts, the jury ruled against Mattel on its claims for ownership of Bratz-related works, for copyright infringement, and for misappropriation of trade secrets. The jury ruled for MGA on its claim of trade secret misappropriation as to 26 of its claimed trade secrets and awarded $88.5 million in damages. The jury ruled against MGA as to 88 of its claimed trade secrets. The jury found that Mattel’s misappropriation was willful and malicious.
In early August 2011, the Court ruled on post-trial motions. The Court rejected MGA’s unfair competition claims and also rejected Mattel’s equitable defenses to MGA’s misappropriation of trade secrets claim. The Court reduced the jury’s damages award of $88.5 million to $85.0 million. The Court awarded MGA an additional $85.0 million in punitive damages and approximately $140 million in attorney’s fees and costs. The Court entered a judgment which totaled approximately $310 million in favor of MGA.
On August 11, 2011, Mattel appealed the judgment, challenging on appeal the entirety of the District Court’s monetary award in favor of MGA, including both the award of $170 million in damages for alleged trade secret misappropriation and approximately $140 million in attorney’s fees and costs. On January 24, 2013, the Ninth Circuit Court of Appeals issued a ruling on Mattel’s appeal. In that ruling, the Court found that MGA’s claim for trade secrets misappropriation was not compulsory to any Mattel claim and could not be filed as a counterclaim-in-reply. Accordingly, the Court of Appeals vacated the portion of the judgment awarding damages and attorney’s fees and costs to MGA for prevailing on its trade secrets misappropriation claim, totaling approximately $172.5 million. It ruled that, on remand, the District Court must dismiss MGA’s trade secret claim without prejudice. In its ruling, the Court of Appeals also affirmed the District Court’s award of attorney’s fees and costs under the Copyright Act. Accordingly, Mattel recorded a litigation accrual of approximately $138 million during the fourth quarter of 2012 to cover these fees and costs.
Because multiple claimants asserted rights to the attorney’s fees portion of the judgment, on February 13, 2013, Mattel filed a motion in the District Court for orders permitting Mattel to interplead the proceeds of the judgment and releasing Mattel from liability to any claimant based on Mattel’s payment of the judgment.
On February 27, 2013, MGA filed a motion for leave to amend its prior complaint in the existing federal court lawsuit so that it could reassert its trade secrets claim. Mattel opposed that motion. On December 17, 2013, the District Court denied MGA’s motion for leave to amend and entered an order dismissing MGA’s trade secrets claim without prejudice. Also on December 17, 2013, following a settlement between MGA and certain insurance carriers, the District Court denied Mattel’s motion for leave to interplead the proceeds of the judgment.
On December 21, 2013, a stipulation regarding settlement with insurers and payment of judgment was filed in the District Court, which provided that (i) Mattel would pay approximately $138 million, including accrued interest, in full satisfaction of the copyright fees judgment, (ii) all parties would consent to entry of an order exonerating and discharging the appeal bond posted by Mattel, and (iii) MGA’s insurers would dismiss all pending actions related to the proceeds of the copyright fees judgment, including an appeal by Evanston Insurance Company in an action against Mattel that was pending in the Ninth Circuit. On December 23, 2013, Mattel paid the copyright fees judgment in the total sum, including interest, of approximately $138 million. On December 26, 2013, the District Court entered an order exonerating and discharging the appeal bond posted by Mattel, and on December 27, 2013, MGA filed an acknowledgment of satisfaction of judgment. On December 30, 2013, Evanston Insurance Company’s appeal in its action against Mattel was dismissed.
On January 13, 2014, MGA filed a new, but virtually identical, trade secrets claim against Mattel in Los Angeles County Superior Court. In its complaint, MGA purports to seek damages in excess of $1 billion. On December 3, 2014, the Court overruled Mattel’s request to dismiss MGA’s case as barred as a result of prior litigation between the parties. On July 31, 2017, Mattel filed a motion for summary judgment on the grounds that MGA’s complaint is barred by the statute of limitations. On February 13, 2018, the Court granted Mattel's summary judgment motion. Consistent with this ruling, the Court entered judgment for Mattel on March 8, 2018. On April 24, 2018, MGA filed a Notice of Appeal of the judgment, and on December 20, 2018, MGA filed its opening appellate brief. Mattel does not presently believe that damages in any amount are reasonably possible. Accordingly, no liability has been accrued to date.
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.
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.
On October 2, 2018, the Appeals Court rejected Mattel’s merits appeal, and affirmed the prior rulings in favor of Yellowstone. The actual amount to be paid by Mattel to Yellowstone has yet to be determined.
Securities Litigation
A purported class action lawsuit is pending in the United States District Court for the Central District of California, (consolidating Waterford Township Police & Fire Retirement System v. Mattel, Inc., et al., filed June 27, 2017; and Lathe v. Mattel, Inc., et al., filed July 6, 2017) against Mattel, Christopher A. Sinclair, Richard Dickson, Kevin M. Farr, and Joseph B. Johnson alleging federal securities laws violations in connection with statements allegedly made by the defendants during the period October 20, 2016 through April 20, 2017. In general, the lawsuit asserts allegations that the defendants artificially inflated Mattel’s common stock price by knowingly making materially false and misleading statements and omissions to the investing public about retail customer inventory, the alignment between point-of-sale and shipping data, and Mattel’s overall financial condition. The lawsuit alleges that the defendants’ conduct caused the plaintiff and other stockholders to purchase Mattel common stock at artificially inflated prices. On May 24, 2018, the Court granted Mattel’s motion to dismiss the class action lawsuit, and on June 25, 2018, the plaintiff filed a motion informing the Court he would not be filing an amended complaint. Judgment was entered in favor of Mattel and the individual defendants on September 19, 2018. The plaintiff filed his Notice of Appeal on October 16, 2018.
In addition, a stockholder has filed a derivative action in the United States District Court for the District of Delaware (Lombardi v. Sinclair, et al., filed December 21, 2017) making allegations that are substantially identical to, or are based upon, the allegations of the class action lawsuit. The defendants in the derivative action are the same as those in the class action lawsuit plus Margaret H. Georgiadis, Michael J. Dolan, Trevor A. Edwards, Frances D. Fergusson, Ann Lewnes, Dominic Ng, Vasant M. Prabhu, Dean A. Scarborough, Dirk Van de Put, and Kathy W. Loyd. On February 26, 2018, the derivative action was stayed pending further developments in the class action litigation.
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.
Note 13—Segment Information
Mattel designs, manufactures, and markets a broad variety of toy products worldwide, which are sold to its customers and directly to consumers. Mattel reorganized its brands reporting structure in the first quarter of 2018 as outlined below. Prior period amounts have been reclassified to conform to the current period presentation.
Mattel’s portfolio of brands and products are classified as Power Brands, which includes Barbie, Hot Wheels, Fisher-Price and Thomas & Friends, and American Girl brands, and Toy Box, which includes Owned Brands and Partner Brands.
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 in both the Power Brands, excluding American Girl, and Toy Box categories, although some are developed and adapted for particular international markets.
Segment Data
The following tables present information about revenues, loss/income, depreciation and amortization, and assets by segment. Mattel does not include sales adjustments such as trade discounts and other allowances in the calculation of segment revenues (referred to as "gross sales"). Mattel records these adjustments in its financial accounting systems at the time of sale to each customer, but the adjustments are not allocated to individual products. For this reason, Mattel’s Chief Operating Decision Maker ("CODM") uses gross and net sales by segment as metrics to measure segment performance. Such sales adjustments are included in the determination of segment loss/income from operations based on the adjustments recorded in the financial accounting systems. Segment loss/income represents each segment’s operating loss/income, while consolidated operating loss/income represents loss/income from operations before net interest, other non-operating expense/income, net, and income taxes as reported in the consolidated statements of operations. The corporate and other expense category includes costs not allocated to individual segments, including charges related to incentive compensation, severance and other restructuring costs, share-based payments, and corporate headquarters functions managed on a worldwide basis, and the impact of changes in foreign currency exchange rates on intercompany transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017 (b)
|
|
December 31,
2016 (b)
|
|
(In thousands)
|
Revenues by Segment
|
|
|
|
|
|
North America
|
$
|
2,422,108
|
|
|
$
|
2,536,654
|
|
|
$
|
3,036,181
|
|
International
|
2,312,230
|
|
|
2,503,527
|
|
|
2,447,615
|
|
American Girl
|
341,191
|
|
|
473,944
|
|
|
589,918
|
|
Gross sales
|
5,075,529
|
|
|
5,514,125
|
|
|
6,073,714
|
|
Sales adjustments
|
(560,719
|
)
|
|
(632,632
|
)
|
|
(620,564
|
)
|
Net sales
|
$
|
4,514,810
|
|
|
$
|
4,881,493
|
|
|
$
|
5,453,150
|
|
|
|
|
|
|
|
Segment Income (Loss)
|
|
|
|
|
|
North America
|
$
|
220,769
|
|
|
$
|
102,710
|
|
|
$
|
560,178
|
|
International
|
13,915
|
|
|
(6,322
|
)
|
|
287,730
|
|
American Girl
|
(17,726
|
)
|
|
(72,968
|
)
|
|
106,423
|
|
|
216,958
|
|
|
23,420
|
|
|
954,331
|
|
Corporate and other expense (a)
|
(451,307
|
)
|
|
(359,118
|
)
|
|
(434,356
|
)
|
Operating (loss) income
|
(234,349
|
)
|
|
(335,698
|
)
|
|
519,975
|
|
Interest expense
|
181,886
|
|
|
105,214
|
|
|
95,118
|
|
Interest (income)
|
(6,463
|
)
|
|
(7,777
|
)
|
|
(9,144
|
)
|
Other non-operating expense, net
|
7,331
|
|
|
68,110
|
|
|
31,959
|
|
(Loss) income before income taxes
|
$
|
(417,103
|
)
|
|
$
|
(501,245
|
)
|
|
$
|
402,042
|
|
|
|
(a)
|
Corporate and other expense includes (i) incentive compensation expense of $84.1 million, $19.4 million, and $16.5 million for 2018, 2017, and 2016, respectively, (ii) $104.1 million, $65.1 million, and $39.9 million of charges related to severance and other restructuring costs for 2018, 2017, and 2016, respectively, and (iii) share-based compensation expense of $48.9 million, $67.1 million, and $53.9 million for 2018, 2017, and 2016, respectively.
|
|
|
(b)
|
In accordance with ASU 2017-07, prior period amounts have been retrospectively adjusted, which resulted in a reclassification of $3.4 million and $8.4 million of expense, net from other selling and administrative expenses, which is included in corporate and other expense, to other non-operating expense, net for the year ended December 31, 2017 and 2016, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Depreciation/Amortization by Segment
|
|
|
|
|
|
North America
|
$
|
130,087
|
|
|
$
|
118,898
|
|
|
$
|
118,047
|
|
International
|
95,480
|
|
|
96,623
|
|
|
88,414
|
|
American Girl
|
14,391
|
|
|
22,615
|
|
|
23,023
|
|
|
239,958
|
|
|
238,136
|
|
|
229,484
|
|
Corporate and other
|
31,974
|
|
|
36,631
|
|
|
32,856
|
|
Depreciation and amortization
|
$
|
271,932
|
|
|
$
|
274,767
|
|
|
$
|
262,340
|
|
Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Assets by Segment
|
|
|
|
|
|
North America
|
$
|
615,654
|
|
|
$
|
692,232
|
|
|
$
|
677,203
|
|
International
|
728,870
|
|
|
825,227
|
|
|
763,084
|
|
American Girl
|
43,748
|
|
|
100,184
|
|
|
154,924
|
|
|
1,388,272
|
|
|
1,617,643
|
|
|
1,595,211
|
|
Corporate and other
|
124,700
|
|
|
107,713
|
|
|
130,304
|
|
Accounts receivable and inventories, net
|
$
|
1,512,972
|
|
|
$
|
1,725,356
|
|
|
$
|
1,725,515
|
|
The table below presents worldwide revenues by brand category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Worldwide Revenues by Brand Category (a)
|
|
|
|
|
|
Barbie
|
$
|
1,088,953
|
|
|
$
|
954,892
|
|
|
$
|
971,795
|
|
Hot Wheels
|
834,058
|
|
|
777,341
|
|
|
796,969
|
|
Fisher-Price and Thomas & Friends
|
1,185,669
|
|
|
1,370,543
|
|
|
1,546,111
|
|
American Girl
|
342,442
|
|
|
473,302
|
|
|
592,118
|
|
Toy Box
|
1,624,407
|
|
|
1,938,047
|
|
|
2,166,721
|
|
Gross sales
|
5,075,529
|
|
|
5,514,125
|
|
|
6,073,714
|
|
Sales adjustments
|
(560,719
|
)
|
|
(632,632
|
)
|
|
(620,564
|
)
|
Net sales
|
$
|
4,514,810
|
|
|
$
|
4,881,493
|
|
|
$
|
5,453,150
|
|
|
|
(a)
|
Mattel reorganized its brands reporting structure in the first quarter of 2018. Prior period amounts have been reclassified to conform to the current period presentation.
|
Geographic Information
The tables below present information by geographic area. Revenues are attributed to countries based on location of customer. Long-lived assets principally include goodwill, property, plant, and equipment, net, and identifiable intangibles, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Revenues
|
|
|
|
|
|
North American Region (a)
|
$
|
2,763,299
|
|
|
$
|
3,010,598
|
|
|
$
|
3,626,099
|
|
International Region (b):
|
|
|
|
|
|
Europe
|
1,013,983
|
|
|
1,054,788
|
|
|
1,066,263
|
|
Latin America
|
653,992
|
|
|
675,286
|
|
|
636,535
|
|
Global Emerging Markets
|
644,255
|
|
|
773,453
|
|
|
744,817
|
|
Total International Region
|
2,312,230
|
|
|
2,503,527
|
|
|
2,447,615
|
|
Gross sales
|
5,075,529
|
|
|
5,514,125
|
|
|
6,073,714
|
|
Sales adjustments
|
(560,719
|
)
|
|
(632,632
|
)
|
|
(620,564
|
)
|
Net sales
|
$
|
4,514,810
|
|
|
$
|
4,881,493
|
|
|
$
|
5,453,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Long-Lived Assets
|
|
|
|
|
|
North American Region (c)
|
$
|
1,466,413
|
|
|
$
|
1,543,662
|
|
|
$
|
1,566,621
|
|
International Region
|
1,374,676
|
|
|
1,506,503
|
|
|
1,478,747
|
|
Consolidated total
|
$
|
2,841,089
|
|
|
$
|
3,050,165
|
|
|
$
|
3,045,368
|
|
|
|
(a)
|
Revenues for the North American Region include revenues attributable to the U.S. of $2.60 billion, $2.82 billion, and $3.39 billion for 2018, 2017, and 2016, respectively.
|
|
|
(b)
|
Mattel reorganized its regional reporting structure in the first quarter of 2018. As a result, Global Emerging Markets, which was previously disclosed as Asia Pacific, includes Russia, Turkey, the Middle East, and Africa, which were previously included within Europe. Prior period amounts have been reclassified to conform to the current period presentation.
|
|
|
(c)
|
Long-lived assets for the North American Region include long-lived assets attributable to the U.S. of $1.42 billion, $1.49 billion, and $1.57 billion for 2018, 2017, and 2016, respectively.
|
Major Customers
Sales to Mattel’s two largest customers accounted for 34%, 29%, and 27% of worldwide consolidated net sales for 2018, 2017, and 2016, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In billions)
|
Walmart
|
$
|
1.07
|
|
|
$
|
1.02
|
|
|
$
|
1.05
|
|
Target
|
0.45
|
|
|
0.37
|
|
|
0.41
|
|
During 2017 and 2016, Toys "R" Us accounted for $0.40 billion and $0.64 billion, respectively, of worldwide consolidated net sales.
The North America segment sells products to each of Mattel’s two largest customers. The International segment sells products to Walmart. The American Girl segment sells its children’s publications to each of Mattel's two largest customers.
Note 14—Restructuring Charges
During the third quarter of 2017, Mattel initiated its Structural Simplification cost savings program and expects to exceed $650 million in cost savings by 2020.
The major initiatives of the Structural Simplification cost savings program include:
|
|
•
|
Reducing manufacturing complexity, including SKU reduction, and implementing process improvement initiatives at owned and co-manufacturing facilities;
|
|
|
•
|
Streamlining the organizational structure and reducing headcount expense to better align with the revenue base, and
|
|
|
•
|
Optimizing advertising spend.
|
The following table summarizes Mattel's severance and other restructuring costs activity for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at December 31, 2017
|
|
Charges
|
|
Payments/Utilization
|
|
Liability at December 31, 2018
|
|
(In thousands)
|
Severance
|
$
|
29,794
|
|
|
$
|
62,870
|
|
|
$
|
(64,994
|
)
|
|
$
|
27,670
|
|
Other restructuring costs (a)
|
5,394
|
|
|
46,960
|
|
|
(38,632
|
)
|
|
13,722
|
|
|
$
|
35,188
|
|
|
$
|
109,830
|
|
|
$
|
(103,626
|
)
|
|
$
|
41,392
|
|
|
|
(a)
|
Consists primarily of consulting fees.
|
To date, Mattel has recorded cumulative severance and other restructuring charges of $155.0 million and expects to incur total charges of approximately $200 million related to the Structural Simplification cost savings program.
In connection with the Structural Simplification cost savings program, Mattel recorded severance and other restructuring costs in the following cost and expense categories within the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Cost of sales (a)
|
$
|
5,741
|
|
|
$
|
—
|
|
Other selling and administrative (b)
|
104,089
|
|
|
45,126
|
|
|
$
|
109,830
|
|
|
$
|
45,126
|
|
|
|
(a)
|
Severance and other restructuring costs recorded within cost of sales include plant restructuring charges.
|
|
|
(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 13 to the Consolidated Financial Statements—Segment Information."
|
Note 15—Income Taxes
Consolidated pre-tax (loss) income consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
U.S. operations
|
$
|
(344,443
|
)
|
|
$
|
(269,244
|
)
|
|
$
|
4,979
|
|
Foreign operations
|
(72,660
|
)
|
|
(232,001
|
)
|
|
397,063
|
|
|
$
|
(417,103
|
)
|
|
$
|
(501,245
|
)
|
|
$
|
402,042
|
|
The provision for current and deferred income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Current
|
|
|
|
|
|
Federal
|
$
|
3,935
|
|
|
$
|
(3,153
|
)
|
|
$
|
(3,041
|
)
|
State
|
1,340
|
|
|
1,885
|
|
|
2,455
|
|
Foreign
|
95,404
|
|
|
113,315
|
|
|
91,070
|
|
|
100,679
|
|
|
112,047
|
|
|
90,484
|
|
Deferred
|
|
|
|
|
|
Federal
|
(4,630
|
)
|
|
422,397
|
|
|
(6,094
|
)
|
State
|
(3,368
|
)
|
|
38,819
|
|
|
2,557
|
|
Foreign
|
23,515
|
|
|
(19,929
|
)
|
|
2,187
|
|
|
15,517
|
|
|
441,287
|
|
|
(1,350
|
)
|
Provision for income taxes
|
$
|
116,196
|
|
|
$
|
553,334
|
|
|
$
|
89,134
|
|
Deferred income taxes are provided principally for tax credit carryforwards, net operating loss carryforwards, research and development expenses, employee compensation-related expenses, and certain other reserves that are recognized in different years for financial statement and income tax reporting purposes. Mattel’s deferred income tax assets (liabilities) are composed of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Tax credit carryforwards
|
$
|
64,895
|
|
|
$
|
222,353
|
|
Research and development expenses
|
76,906
|
|
|
92,443
|
|
Net operating loss carryforwards
|
187,741
|
|
|
139,544
|
|
Allowances and reserves
|
94,168
|
|
|
178,930
|
|
Deferred compensation
|
63,641
|
|
|
49,616
|
|
Postretirement benefits
|
24,666
|
|
|
30,564
|
|
Intangible assets
|
419
|
|
|
6,096
|
|
Other
|
48,262
|
|
|
50,554
|
|
Gross deferred income tax assets
|
560,698
|
|
|
770,100
|
|
Intangible assets
|
(196,012
|
)
|
|
(175,921
|
)
|
Other
|
(15,782
|
)
|
|
—
|
|
Gross deferred income tax liabilities
|
(211,794
|
)
|
|
(175,921
|
)
|
Deferred income tax asset valuation allowances
|
(365,820
|
)
|
|
(580,937
|
)
|
Net deferred income tax (liabilities) assets
|
$
|
(16,916
|
)
|
|
$
|
13,242
|
|
Net deferred income tax assets (liabilities) are reported in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Other noncurrent assets
|
$
|
49,937
|
|
|
$
|
77,740
|
|
Other noncurrent liabilities
|
(66,853
|
)
|
|
(64,498
|
)
|
|
$
|
(16,916
|
)
|
|
$
|
13,242
|
|
As of December 31, 2018, Mattel had federal, state and foreign loss carryforwards totaling $662.0 million and tax credit carryforwards of $64.9 million, which excludes carryforwards that do not meet the threshold for recognition in the financial statements. Utilization of these loss and tax credit carryforwards is subject to annual limitations. Mattel’s loss and tax credit carryforwards expire in the following periods:
|
|
|
|
|
|
|
|
|
|
Loss
Carryforwards
|
|
Tax Credit
Carryforwards
|
|
(In thousands)
|
2019–2023
|
$
|
8,190
|
|
|
$
|
2,837
|
|
Thereafter
|
213,629
|
|
|
39,871
|
|
No expiration date
|
440,191
|
|
|
22,149
|
|
Total
|
$
|
662,010
|
|
|
$
|
64,857
|
|
Periodically, Mattel considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely-than-not that some or all of the deferred tax assets will not be realized. During the third quarter of 2017, Mattel established a valuation allowance on U.S. deferred tax assets that will more than likely not be realized due to the determination that negative evidence outweighed the positive evidence. As of December 31, 2018, Mattel's valuation allowance on its federal and state deferred tax assets was approximately $291 million. Changes in the valuation allowance in 2018 primarily related to the utilization of loss and credit carryforwards against the tax on the inclusion of accumulated foreign earnings under the U.S. Tax Act, offset by current year losses and credits generated.
In addition, management determined that a valuation allowance of approximately $75 million was required as of December 31, 2018 for certain foreign deferred tax assets that will more than likely not be realized due to the determination that negative evidence outweighed the positive evidence. Changes in the valuation allowance for 2018 primarily related to increases in the valuation allowance related to losses without benefits, offset by decreases in the valuation allowance for certain deferred tax assets and expirations of tax loss and/or tax credit carryforwards. For the remaining foreign deferred tax assets without a valuation allowance, management believes it is more-likely-than-not that Mattel will generate sufficient taxable income in the appropriate future periods to realize the benefit of the remaining deferred income tax assets.
Differences between the provision for income taxes at the U.S. federal statutory income tax rate and the provision in the consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
(Benefit) provision at U.S. federal statutory rate
|
$
|
(87,592
|
)
|
|
$
|
(175,436
|
)
|
|
$
|
140,715
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
U.S. valuation allowance
|
64,907
|
|
|
558,976
|
|
|
—
|
|
Foreign earnings taxed at different rates, including foreign losses without benefit
|
103,231
|
|
|
266,807
|
|
|
(43,010
|
)
|
U.S. Tax Act (a)
|
3,709
|
|
|
(107,049
|
)
|
|
—
|
|
State and local taxes, net of U.S. federal (expense) benefit
|
(2,028
|
)
|
|
2,254
|
|
|
3,319
|
|
Adjustments to previously accrued taxes
|
6,621
|
|
|
5,159
|
|
|
(12,537
|
)
|
Change in indefinite reinvestment assertion
|
14,566
|
|
|
—
|
|
|
—
|
|
Other (b)
|
12,782
|
|
|
2,623
|
|
|
647
|
|
Provision for income taxes
|
$
|
116,196
|
|
|
$
|
553,334
|
|
|
$
|
89,134
|
|
|
|
(a)
|
For 2018, U.S. Tax Act expense was netted with utilization of carryover tax attributes and current year generated tax attributes.
|
|
|
(b)
|
For 2018, Other includes $8.1 million of tax credit expiration.
|
In assessing whether uncertain tax positions should be recognized in its financial statements, Mattel first determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, Mattel presumes that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. For tax positions that meet the more-likely-than-not recognition threshold, Mattel measures the amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Mattel recognizes unrecognized tax benefits in the first financial reporting period in which information becomes available indicating that such benefits will more-likely-than-not be realized.
Mattel records a reserve for unrecognized tax benefits for U.S. federal, state, local, and foreign tax positions related primarily to transfer pricing, tax credits claimed, tax nexus, and apportionment. For each reporting period, management applies a consistent methodology to measure unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant. Mattel’s measurement of its reserve for unrecognized tax benefits is based on management’s assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax audits, lapsing of applicable statutes of limitations, identification of new issues, and any administrative guidance or developments.
A reconciliation of the reserve for unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Unrecognized tax benefits at January 1
|
$
|
116,070
|
|
|
$
|
109,347
|
|
|
$
|
118,099
|
|
Increases for positions taken in current year
|
7,548
|
|
|
4,171
|
|
|
2,925
|
|
Increases for positions taken in a prior year
|
25,239
|
|
|
19,318
|
|
|
921
|
|
Decreases for positions taken in a prior year
|
(1,813
|
)
|
|
(5,637
|
)
|
|
(1,706
|
)
|
Decreases for settlements with taxing authorities
|
(1,143
|
)
|
|
(2,349
|
)
|
|
(1,097
|
)
|
Decreases for lapses in the applicable statute of limitations
|
(26,083
|
)
|
|
(8,780
|
)
|
|
(9,795
|
)
|
Unrecognized tax benefits at December 31
|
$
|
119,818
|
|
|
$
|
116,070
|
|
|
$
|
109,347
|
|
Of the $119.8 million of unrecognized tax benefits as of December 31, 2018, $81.7 million would impact the effective tax rate if recognized, of which $38.1 million would result in an increase in the valuation allowance.
Mattel recognized an increase of interest and penalties of approximately $8 million in 2018, an increase of $2 million in 2017, and a decrease of $2 million in 2016, related to unrecognized tax benefits, which are reflected in provision for income taxes in the consolidated statements of operations. As of December 31, 2018, Mattel accrued $26.4 million in interest and penalties related to unrecognized tax benefits, all of which would impact the effective tax rate if recognized. As of December 31, 2017, Mattel accrued $18.6 million in interest and penalties related to unrecognized tax benefits, $17.7 million of which would impact the effective tax rate if recognized.
Effects of the U.S. Tax Act were required to be accounted for in the period of enactment (the fourth quarter of 2017) for calendar year-end companies. Staff Accounting Bulletin ("SAB") 118 was issued shortly thereafter to address the application of U.S. GAAP in the period of enactment when a company is unable to complete the accounting for certain income tax effects of the U.S. Tax Act, extending the "measurement period" to one year from the enactment date (i.e. extended to the fourth quarter of 2018). Revisions to the tax impact for the period of enactment should be accounted for each period (not to extend beyond one-year) as the estimate is refined. The U.S. Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the federal corporate income tax rate from 35% to 21% effective January 1, 2018, implementing the territorial tax system, and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. There was no change in the 2017 tax charge related to the remeasurement of the U.S. net deferred tax assets recorded in 2017.
As of the fourth quarter of 2018, at the close of the SAB 118 measurement period, Mattel recorded a $3.7 million tax expense related to the deemed repatriation of accumulated foreign earnings (net of related valuation allowance change). In January 2018, the FASB issued guidance stating that a company must make an accounting policy election of either (i) treating taxes due on future U.S. inclusions in taxable income related to Global Intangible Low-Taxed Income ("GILTI") as a current-period expense when incurred (the "period cost method") or (ii) factoring such amounts into a company’s measurement of its deferred taxes (the "deferred method"). Mattel has elected the period cost method and has considered the estimated 2018 GILTI impact in its 2018 tax expense.
On January 1, 2018, Mattel adopted ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which required Mattel to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. Previously, the income tax effect of intercompany transfers of assets was deferred until the asset was sold to an outside party or otherwise recognized (e.g., depreciated, amortized, impaired). The new guidance requires Mattel to defer only the income tax effects of intercompany transfers of inventory. A cumulative effect adjustment of $9.4 million was recorded as an increase to beginning retained earnings in the first quarter of 2018.
In the normal course of business, Mattel is regularly audited by federal, state, local and foreign tax authorities. Mattel remains subject to IRS examination for the 2015 through 2018 tax years. Mattel files multiple state and local income tax returns and remains subject to examination in various jurisdictions, including California for the 2008 through 2018 tax years, New York for the 2014 through 2018 tax years, and Wisconsin for the 2008 through 2018 tax years. Mattel files multiple foreign income tax returns and remains subject to examination in various foreign jurisdictions including Hong Kong for the 2012 through 2018 tax years, Brazil for the 2013 through 2018 tax years, Mexico for the 2013 through 2018 tax years, Netherlands for the 2013 through 2018 tax years, and Russia for the 2016 through 2018 tax years. Based on the current status of federal, state, local, and foreign audits, Mattel believes it is reasonably possible that in the next 12 months, the total unrecognized tax benefits could decrease by $4.3 million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate settlement of any issue with the applicable taxing authority could have a material impact on Mattel’s consolidated financial statements.
Mattel's provision for income taxes was $116.2 million in 2018, as compared to $553.3 million in 2017 and $89.1 million in 2016. The 2018 income tax provision included a $14.6 million expense related to changes to Mattel's indefinite reinvestment assertion and a $3.7 million expense related to the deemed repatriation of accumulated foreign earnings (net of related valuation allowance change). The 2017 income tax provision included a net tax expense of $457.1 million, primarily related to the establishment of a valuation allowance in the third quarter of 2017 on U.S. deferred tax assets that will likely not be realized and a provisional estimate of the impact of the U.S. Tax Act related to the remeasurement of U.S. net deferred tax liabilities from 35% to 21% tax rate. The 2016 income tax provision included a net tax benefit of $16.8 million, primarily related to reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions around the world, settlements, enacted tax law changes, and the adoption of ASU 2016-09.
Mattel has not recorded a deferred tax liability related to undistributed earnings of its foreign subsidiaries as of December 31, 2018, except for a $14.6 million tax expense recorded in 2018 related to changes to the indefinite reinvestment assertion. Taxes have not been provided on the remaining $4.7 billion of undistributed foreign earnings taxed under the Tax Act. The determination of any incremental tax liability associated with these earnings is not practicable due to the complexity of local country withholding rules and interactions with tax treaties, foreign exchange considerations, and the diversity of state income tax treatment on actual distribution. Mattel will remit reinvested earnings of its foreign subsidiaries for which a deferred tax liability has been recorded when the Company determines that it is advantageous for business operations or cash management purposes.
Note 16—Supplemental Financial Information
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(In thousands)
|
Inventories include the following:
|
|
|
|
Raw materials and work in process
|
$
|
115,966
|
|
|
$
|
101,690
|
|
Finished goods
|
426,923
|
|
|
499,014
|
|
|
$
|
542,889
|
|
|
$
|
600,704
|
|
Other noncurrent assets include the following:
|
|
|
|
Identifiable intangibles (net of accumulated amortization of $207.9 million and $168.8 million at December 31, 2018 and 2017, respectively)
|
$
|
587,528
|
|
|
$
|
639,203
|
|
Deferred income taxes
|
49,937
|
|
|
77,740
|
|
Other
|
209,541
|
|
|
229,008
|
|
|
$
|
847,006
|
|
|
$
|
945,951
|
|
Accrued liabilities include the following:
|
|
|
|
Advertising and promotion
|
$
|
86,935
|
|
|
$
|
165,572
|
|
Royalties
|
108,109
|
|
|
111,669
|
|
Taxes other than income taxes
|
54,317
|
|
|
74,626
|
|
Incentive compensation
|
87,086
|
|
|
20,218
|
|
Other
|
367,922
|
|
|
420,054
|
|
|
$
|
704,369
|
|
|
$
|
792,139
|
|
Other noncurrent liabilities include the following:
|
|
|
|
Benefit plan liabilities
|
$
|
186,380
|
|
|
$
|
187,830
|
|
Noncurrent tax liabilities
|
150,960
|
|
|
124,330
|
|
Other
|
132,329
|
|
|
171,966
|
|
|
$
|
469,669
|
|
|
$
|
484,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2018
|
|
December 31,
2017
|
|
December 31,
2016
|
|
(In thousands)
|
Currency transaction losses included in:
|
|
|
|
|
|
Operating loss
|
$
|
(5,061
|
)
|
|
$
|
(29,678
|
)
|
|
$
|
(164,042
|
)
|
Other non-operating expense, net
|
(3,328
|
)
|
|
(6,525
|
)
|
|
(27,290
|
)
|
Net transaction losses
|
$
|
(8,389
|
)
|
|
$
|
(36,203
|
)
|
|
$
|
(191,332
|
)
|
Other selling and administrative expenses include the following:
|
|
|
|
|
|
Design and development
|
$
|
205,368
|
|
|
$
|
225,245
|
|
|
$
|
215,304
|
|
Identifiable intangible asset amortization
|
39,095
|
|
|
23,273
|
|
|
22,215
|
|
Bad debt expense
|
40,894
|
|
|
17,568
|
|
|
9,165
|
|
Note 17—Restatement of Quarterly Financial Information (Unaudited)
On August 6, 2019, Mattel was made aware of an anonymous whistleblower letter. An independent investigation was initiated in August 2019 on matters discussed in that letter. The investigation concluded there were material tax related misstatements in the previously issued unaudited consolidated financial statements as of and for the three and nine month periods ended September 30, 2017 and previously reported unaudited consolidated financial information for the three months ended December 31, 2017 and failures to properly consider and communicate such misstatements to Mattel’s then Chief Executive Officer and Audit Committee. The investigation did not find that management engaged in fraud. As it relates to the accounting misstatement, it was concluded that Mattel had failed to properly consider an indefinite-lived intangible asset in its tax valuation allowance calculation for the three months ended September 30, 2017, which caused the provision for income taxes to be understated by $109.0 million. In the fourth quarter of 2017, Mattel determined that the intangible asset was no longer indefinite-lived. This change resulted in an effective correction of the tax misstatement for the 2017 annual results. However, the provision for income taxes remained uncorrected for the three months ended September 30, 2017, which resulted in an overstatement of the tax expense for the three months ended December 31, 2017.
In addition to the misstatement described above, there were certain other immaterial prior period misstatements, related to the improper capitalization of certain advertising costs, and the under-accrual of sales adjustments, freight and logistics costs, employee related costs, and the provision for income taxes. The provision for income taxes misstatement was unrelated to the restated income tax matter. Each of these misstatements which were determined to be immaterial, both individually and in the aggregate, have been corrected in the tables below.
The following table represents a Summary of Restated and Revised Quarterly Financial Data for years ended December 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
|
As Revised
|
|
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
Net sales
|
$
|
708,372
|
|
|
$
|
844,706
|
|
|
$
|
1,437,451
|
|
|
$
|
1,524,281
|
|
Cost of sales
|
489,499
|
|
|
587,546
|
|
|
824,395
|
|
|
814,687
|
|
Gross profit
|
218,873
|
|
|
257,160
|
|
|
613,056
|
|
|
709,594
|
|
Advertising and promotion expenses
|
70,837
|
|
|
82,393
|
|
|
165,308
|
|
|
205,750
|
|
Other selling and administrative expenses
|
424,617
|
|
|
360,000
|
|
|
325,874
|
|
|
398,253
|
|
Operating (loss) income
|
(276,581
|
)
|
|
(185,233
|
)
|
|
121,874
|
|
|
105,591
|
|
(Loss) income before income taxes
|
(313,905
|
)
|
|
(230,064
|
)
|
|
72,592
|
|
|
54,274
|
|
Net (loss) income (a)
|
(311,253
|
)
|
|
(237,963
|
)
|
|
6,278
|
|
|
9,639
|
|
Net (loss) income (a) per common share - basic
|
$
|
(0.90
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
Weighted average number of common shares
|
344,434
|
|
|
344,584
|
|
|
345,285
|
|
|
345,720
|
|
Net (loss) income per common share - diluted
|
$
|
(0.90
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
Weighted average number of common and potential common shares
|
344,434
|
|
|
344,584
|
|
|
345,672
|
|
|
345,846
|
|
Dividends declared per common share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
As Revised
|
|
As Revised
|
|
As Restated
|
|
As Restated
|
|
(In thousands, except per share amounts)
|
Year Ended December 31, 2017
|
|
Net sales
|
$
|
737,418
|
|
|
$
|
976,177
|
|
|
$
|
1,560,983
|
|
|
$
|
1,606,915
|
|
Cost of sales
|
455,240
|
|
|
574,712
|
|
|
911,234
|
|
|
1,115,736
|
|
Gross profit
|
282,178
|
|
|
401,465
|
|
|
649,749
|
|
|
491,179
|
|
Advertising and promotion expenses
|
73,562
|
|
|
95,499
|
|
|
179,691
|
|
|
293,534
|
|
Other selling and administrative expenses (b)
|
330,829
|
|
|
353,296
|
|
|
381,214
|
|
|
452,644
|
|
Operating (loss) income (b)
|
(122,213
|
)
|
|
(47,330
|
)
|
|
88,844
|
|
|
(254,999
|
)
|
(Loss) income before income taxes
|
(142,271
|
)
|
|
(72,043
|
)
|
|
63,863
|
|
|
(350,794
|
)
|
Net loss (a)
|
(110,956
|
)
|
|
(54,885
|
)
|
|
(713,445
|
)
|
|
(175,293
|
)
|
Net loss (a) per common share - basic
|
$
|
(0.32
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(2.07
|
)
|
|
$
|
(0.51
|
)
|
Weighted average number of common shares
|
342,914
|
|
|
343,116
|
|
|
343,870
|
|
|
344,294
|
|
Net loss (a) per common share - diluted
|
$
|
(0.32
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(2.07
|
)
|
|
$
|
(0.51
|
)
|
Weighted average number of common and potential common shares
|
342,914
|
|
|
343,116
|
|
|
343,870
|
|
|
344,294
|
|
Dividends declared per common share
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.15
|
|
|
$
|
—
|
|
|
|
(a)
|
Net loss in the first and second quarters of 2018 included net discrete tax expense of $4.5 million and a net discrete tax benefit of $2.3 million, respectively, primarily related to reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions around the world, settlements, and enacted law changes. Net income in the third quarter of 2018 included net discrete tax expense of $42.1 million, primarily related to reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions around the world, changes to the indefinite reinvestment assertion, repatriation of accumulated foreign earnings (net of related valuation allowance change), and enacted law changes. Net income in the fourth quarter of 2018 included a net discrete tax benefit of $5.6 million related to the deemed repatriation of accumulated foreign earnings (net of related valuation allowance change). Net loss for the first and second quarters of 2017 included net discrete tax expense of $0.5 million and a net discrete tax benefit of $3.2 million, respectively, primarily related to reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions around the world, settlements, and enacted law changes. Net loss in the third quarter of 2017 included net discrete tax expense of $674.9 million, primarily related to the establishment of a valuation allowance. Net loss in the fourth quarter of 2017 included a net discrete tax benefit of $214.6 million primarily related to reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions around the world, settlements, and enacted tax law changes.
|
|
|
(b)
|
In accordance with ASU 2017-07, prior period amounts have been retrospectively adjusted, which resulted in a reclassification of $1.4 million, $(0.3) million, $0.5 million, and $1.8 million of expense, net from other selling and administrative expenses to other non-operating expense, net for the quarters ended March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017.
|
Restatement of Quarterly Information for the Third and Fourth Quarter of 2017
The following represents the restatement of the unaudited consolidated financial statements as of and for the periods ended September 30, 2017:
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
Cash and equivalents
|
$
|
181,308
|
|
|
$
|
—
|
|
|
$
|
181,308
|
|
Accounts receivable, net
|
1,506,145
|
|
|
—
|
|
|
1,506,145
|
|
Inventories
|
989,995
|
|
|
—
|
|
|
989,995
|
|
Prepaid expenses and other current assets
|
352,711
|
|
|
—
|
|
|
352,711
|
|
Total current assets
|
3,030,159
|
|
|
—
|
|
|
3,030,159
|
|
Noncurrent Assets
|
|
|
|
|
|
Property, plant, and equipment, net
|
821,228
|
|
|
—
|
|
|
821,228
|
|
Goodwill
|
1,397,642
|
|
|
—
|
|
|
1,397,642
|
|
Other noncurrent assets
|
950,655
|
|
|
—
|
|
|
950,655
|
|
Total Assets
|
$
|
6,199,684
|
|
|
$
|
—
|
|
|
$
|
6,199,684
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
Short-term borrowings
|
$
|
732,649
|
|
|
$
|
—
|
|
|
$
|
732,649
|
|
Current portion of long-term debt
|
250,000
|
|
|
—
|
|
|
250,000
|
|
Accounts payable
|
713,488
|
|
|
—
|
|
|
713,488
|
|
Accrued liabilities
|
568,845
|
|
|
7,388
|
|
|
576,233
|
|
Income taxes payable
|
32,296
|
|
|
—
|
|
|
32,296
|
|
Total current liabilities
|
2,297,278
|
|
|
7,388
|
|
|
2,304,666
|
|
Noncurrent Liabilities
|
|
|
|
|
|
Long-term debt
|
1,886,404
|
|
|
—
|
|
|
1,886,404
|
|
Other noncurrent liabilities
|
576,327
|
|
|
108,958
|
|
|
685,285
|
|
Total noncurrent liabilities
|
2,462,731
|
|
|
108,958
|
|
|
2,571,689
|
|
Stockholders’ Equity
|
|
|
|
|
|
Common stock $1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued
|
441,369
|
|
|
—
|
|
|
441,369
|
|
Additional paid-in capital
|
1,793,036
|
|
|
—
|
|
|
1,793,036
|
|
Treasury stock at cost: 97.7 million shares
|
(2,392,422
|
)
|
|
—
|
|
|
(2,392,422
|
)
|
Retained earnings
|
2,460,224
|
|
|
(116,346
|
)
|
|
2,343,878
|
|
Accumulated other comprehensive loss
|
(862,532
|
)
|
|
—
|
|
|
(862,532
|
)
|
Total stockholders’ equity
|
1,439,675
|
|
|
(116,346
|
)
|
|
1,323,329
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
6,199,684
|
|
|
$
|
—
|
|
|
$
|
6,199,684
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
(In thousands, except per share amounts)
|
Net Sales
|
$
|
1,560,983
|
|
|
$
|
—
|
|
|
$
|
1,560,983
|
|
|
$
|
3,271,078
|
|
|
$
|
3,500
|
|
|
$
|
3,274,578
|
|
Cost of sales
|
913,834
|
|
|
(2,600
|
)
|
|
911,234
|
|
|
1,945,386
|
|
|
(4,200
|
)
|
|
1,941,186
|
|
Gross Profit
|
647,149
|
|
|
2,600
|
|
|
649,749
|
|
|
1,325,692
|
|
|
7,700
|
|
|
1,333,392
|
|
Advertising and promotion expenses
|
179,691
|
|
|
—
|
|
|
179,691
|
|
|
348,752
|
|
|
—
|
|
|
348,752
|
|
Other selling and administrative expenses
|
381,214
|
|
|
—
|
|
|
381,214
|
|
|
1,065,339
|
|
|
—
|
|
|
1,065,339
|
|
Operating Income (Loss)
|
86,244
|
|
|
2,600
|
|
|
88,844
|
|
|
(88,399
|
)
|
|
7,700
|
|
|
(80,699
|
)
|
Interest expense
|
24,646
|
|
|
—
|
|
|
24,646
|
|
|
68,557
|
|
|
—
|
|
|
68,557
|
|
Interest (income)
|
(1,575
|
)
|
|
—
|
|
|
(1,575
|
)
|
|
(6,337
|
)
|
|
—
|
|
|
(6,337
|
)
|
Other non-operating expense, net
|
1,910
|
|
|
—
|
|
|
1,910
|
|
|
7,532
|
|
|
—
|
|
|
7,532
|
|
Income (Loss) Before Income Taxes
|
61,263
|
|
|
2,600
|
|
|
63,863
|
|
|
(158,151
|
)
|
|
7,700
|
|
|
(150,451
|
)
|
Provision for income taxes
|
664,510
|
|
|
112,798
|
|
|
777,308
|
|
|
614,402
|
|
|
114,433
|
|
|
728,835
|
|
Net Loss
|
$
|
(603,247
|
)
|
|
$
|
(110,198
|
)
|
|
$
|
(713,445
|
)
|
|
$
|
(772,553
|
)
|
|
$
|
(106,733
|
)
|
|
$
|
(879,286
|
)
|
Net Loss Per Common Share - Basic
|
$
|
(1.75
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(2.07
|
)
|
|
$
|
(2.25
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(2.56
|
)
|
Weighted average number of common shares
|
343,870
|
|
|
—
|
|
|
343,870
|
|
|
343,304
|
|
|
—
|
|
|
343,304
|
|
Net Loss Per Common Share - Diluted
|
$
|
(1.75
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(2.07
|
)
|
|
$
|
(2.25
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(2.56
|
)
|
Weighted average number of common and potential common shares
|
343,870
|
|
|
—
|
|
|
343,870
|
|
|
343,304
|
|
|
—
|
|
|
343,304
|
|
Dividends Declared Per Common Share
|
$
|
0.15
|
|
|
$
|
—
|
|
|
$
|
0.15
|
|
|
$
|
0.91
|
|
|
$
|
—
|
|
|
$
|
0.91
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
(In thousands)
|
Net Loss
|
$
|
(603,247
|
)
|
|
$
|
(110,198
|
)
|
|
$
|
(713,445
|
)
|
|
$
|
(772,553
|
)
|
|
$
|
(106,733
|
)
|
|
$
|
(879,286
|
)
|
Other Comprehensive Income, Net of Tax
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
36,912
|
|
|
—
|
|
|
36,912
|
|
|
142,248
|
|
|
—
|
|
|
142,248
|
|
Defined benefit pension plan adjustments
|
1,106
|
|
|
—
|
|
|
1,106
|
|
|
3,185
|
|
|
—
|
|
|
3,185
|
|
Net unrealized losses on available-for-sale security
|
(3,848
|
)
|
|
—
|
|
|
(3,848
|
)
|
|
(7,585
|
)
|
|
—
|
|
|
(7,585
|
)
|
Net unrealized losses on derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses
|
(24,009
|
)
|
|
—
|
|
|
(24,009
|
)
|
|
(63,999
|
)
|
|
—
|
|
|
(63,999
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
9,241
|
|
|
—
|
|
|
9,241
|
|
|
6,648
|
|
|
—
|
|
|
6,648
|
|
|
(14,768
|
)
|
|
—
|
|
|
(14,768
|
)
|
|
(57,351
|
)
|
|
—
|
|
|
(57,351
|
)
|
Other Comprehensive Income, Net of Tax
|
19,402
|
|
|
—
|
|
|
19,402
|
|
|
80,497
|
|
|
—
|
|
|
80,497
|
|
Comprehensive Loss
|
$
|
(583,845
|
)
|
|
$
|
(110,198
|
)
|
|
$
|
(694,043
|
)
|
|
$
|
(692,056
|
)
|
|
$
|
(106,733
|
)
|
|
$
|
(798,789
|
)
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
(In thousands)
|
Net loss
|
$
|
(772,553
|
)
|
|
$
|
(106,733
|
)
|
|
$
|
(879,286
|
)
|
Adjustments to reconcile net loss to net cash flows used for operating activities:
|
|
|
|
|
|
Depreciation
|
179,831
|
|
|
—
|
|
|
179,831
|
|
Amortization
|
16,264
|
|
|
—
|
|
|
16,264
|
|
Asset impairments
|
14,942
|
|
|
—
|
|
|
14,942
|
|
Deferred income taxes
|
2,057
|
|
|
5,475
|
|
|
7,532
|
|
Valuation allowance on deferred tax assets
|
561,915
|
|
|
108,958
|
|
|
670,873
|
|
Share-based compensation
|
47,582
|
|
|
—
|
|
|
47,582
|
|
Bad debt expense
|
11,758
|
|
|
—
|
|
|
11,758
|
|
Inventory obsolescence
|
37,402
|
|
|
—
|
|
|
37,402
|
|
(Decrease) increase from changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(367,579
|
)
|
|
(3,500
|
)
|
|
(371,079
|
)
|
Inventories
|
(396,415
|
)
|
|
—
|
|
|
(396,415
|
)
|
Prepaid expenses and other current assets
|
(19,027
|
)
|
|
(7,388
|
)
|
|
(26,415
|
)
|
Accounts payable, accrued liabilities, and income taxes payable
|
9,893
|
|
|
3,188
|
|
|
13,081
|
|
Other, net
|
(66,140
|
)
|
|
—
|
|
|
(66,140
|
)
|
Net cash flows used for operating activities
|
(740,070
|
)
|
|
—
|
|
|
(740,070
|
)
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
Purchases of tools, dies, and molds
|
(101,428
|
)
|
|
—
|
|
|
(101,428
|
)
|
Purchases of other property, plant, and equipment
|
(133,895
|
)
|
|
—
|
|
|
(133,895
|
)
|
Proceeds from foreign currency forward exchange contracts
|
60,376
|
|
|
—
|
|
|
60,376
|
|
Other, net
|
38
|
|
|
—
|
|
|
38
|
|
Net cash flows used for investing activities
|
(174,909
|
)
|
|
—
|
|
|
(174,909
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
Payments of short-term borrowings, net
|
(878,937
|
)
|
|
—
|
|
|
(878,937
|
)
|
Proceeds from short-term borrowings, net
|
1,419,418
|
|
|
—
|
|
|
1,419,418
|
|
Payments of dividends on common stock
|
(311,973
|
)
|
|
—
|
|
|
(311,973
|
)
|
Proceeds from exercise of stock options
|
1,768
|
|
|
—
|
|
|
1,768
|
|
Other, net
|
(16,543
|
)
|
|
—
|
|
|
(16,543
|
)
|
Net cash flows provided by financing activities
|
213,733
|
|
|
—
|
|
|
213,733
|
|
Effect of Currency Exchange Rate Changes on Cash
|
13,023
|
|
|
—
|
|
|
13,023
|
|
Decrease in Cash and Equivalents
|
(688,223
|
)
|
|
—
|
|
|
(688,223
|
)
|
Cash and Equivalents at Beginning of Period
|
869,531
|
|
|
—
|
|
|
869,531
|
|
Cash and Equivalents at End of Period
|
$
|
181,308
|
|
|
$
|
—
|
|
|
$
|
181,308
|
|
The following represents the restatement of the unaudited consolidated financial data for the period ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Restated
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
1,610,873
|
|
|
$
|
(3,958
|
)
|
|
$
|
1,606,915
|
|
Cost of sales
|
1,115,736
|
|
|
—
|
|
|
1,115,736
|
|
Gross profit
|
495,137
|
|
|
(3,958
|
)
|
|
491,179
|
|
Advertising and promotion expenses
|
293,534
|
|
|
—
|
|
|
293,534
|
|
Other selling and administrative expenses
|
452,644
|
|
|
—
|
|
|
452,644
|
|
Operating loss
|
(251,041
|
)
|
|
(3,958
|
)
|
|
(254,999
|
)
|
Loss before income taxes
|
(346,836
|
)
|
|
(3,958
|
)
|
|
(350,794
|
)
|
Net loss
|
(281,283
|
)
|
|
105,990
|
|
|
(175,293
|
)
|
Net loss per common share—basic
|
$
|
(0.82
|
)
|
|
$
|
0.31
|
|
|
$
|
(0.51
|
)
|
Weighted average number of common shares
|
344,294
|
|
|
—
|
|
|
344,294
|
|
Net loss per common share—diluted
|
$
|
(0.82
|
)
|
|
$
|
0.31
|
|
|
$
|
(0.51
|
)
|
Weighted average number of common and potential common shares
|
344,294
|
|
|
—
|
|
|
344,294
|
|
Dividends declared per common share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Revision of Quarterly Information
The effects of immaterial revisions on the impacted interim periods are presented below. Periods which were not impacted by such revisions are not presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
840,748
|
|
|
$
|
3,958
|
|
|
$
|
844,706
|
|
Cost of sales
|
587,546
|
|
|
—
|
|
|
587,546
|
|
Gross profit
|
253,202
|
|
|
3,958
|
|
|
257,160
|
|
Advertising and promotion expenses
|
82,393
|
|
|
—
|
|
|
82,393
|
|
Other selling and administrative expenses
|
360,000
|
|
|
—
|
|
|
360,000
|
|
Operating loss
|
(189,191
|
)
|
|
3,958
|
|
|
(185,233
|
)
|
Loss before income taxes
|
(234,022
|
)
|
|
3,958
|
|
|
(230,064
|
)
|
Net loss
|
(240,931
|
)
|
|
2,968
|
|
|
(237,963
|
)
|
Net loss per common share - basic
|
$
|
(0.70
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.69
|
)
|
Weighted average number of common shares
|
344,584
|
|
|
—
|
|
|
344,584
|
|
Net loss per common share - diluted
|
$
|
(0.70
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.69
|
)
|
Weighted average number of common and potential common shares
|
344,584
|
|
|
—
|
|
|
344,584
|
|
Dividends declared per common share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
1,524,281
|
|
|
$
|
—
|
|
|
$
|
1,524,281
|
|
Cost of sales
|
814,687
|
|
|
—
|
|
|
814,687
|
|
Gross profit
|
709,594
|
|
|
—
|
|
|
709,594
|
|
Advertising and promotion expenses
|
207,898
|
|
|
(2,148
|
)
|
|
205,750
|
|
Other selling and administrative expenses
|
394,305
|
|
|
3,948
|
|
|
398,253
|
|
Operating income
|
107,391
|
|
|
(1,800
|
)
|
|
105,591
|
|
Income before income taxes
|
56,074
|
|
|
(1,800
|
)
|
|
54,274
|
|
Net income
|
14,913
|
|
|
(5,274
|
)
|
|
9,639
|
|
Net income per common share - basic
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
Weighted average number of common shares
|
345,720
|
|
|
—
|
|
|
345,720
|
|
Net income per common share - diluted
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
Weighted average number of common and potential common shares
|
345,846
|
|
|
—
|
|
|
345,846
|
|
Dividends declared per common share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
974,477
|
|
|
$
|
1,700
|
|
|
$
|
976,177
|
|
Cost of sales
|
574,712
|
|
|
—
|
|
|
574,712
|
|
Gross profit
|
399,765
|
|
|
1,700
|
|
|
401,465
|
|
Advertising and promotion expenses
|
95,499
|
|
|
—
|
|
|
95,499
|
|
Other selling and administrative expenses
|
353,296
|
|
|
—
|
|
|
353,296
|
|
Operating loss
|
(49,030
|
)
|
|
1,700
|
|
|
(47,330
|
)
|
Loss before income taxes
|
(73,743
|
)
|
|
1,700
|
|
|
(72,043
|
)
|
Net loss
|
(56,075
|
)
|
|
1,190
|
|
|
(54,885
|
)
|
Net loss per common share—basic
|
$
|
(0.16
|
)
|
|
$
|
—
|
|
|
$
|
(0.16
|
)
|
Weighted average number of common shares
|
343,116
|
|
|
—
|
|
|
343,116
|
|
Net loss per common share—diluted
|
$
|
(0.16
|
)
|
|
$
|
—
|
|
|
$
|
(0.16
|
)
|
Weighted average number of common and potential common shares
|
343,116
|
|
|
—
|
|
|
343,116
|
|
Dividends declared per common share
|
$
|
0.38
|
|
|
$
|
—
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
As Previously Reported
|
|
Adjustments
|
|
As Revised
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
735,618
|
|
|
$
|
1,800
|
|
|
$
|
737,418
|
|
Cost of sales
|
456,840
|
|
|
(1,600
|
)
|
|
455,240
|
|
Gross profit
|
278,778
|
|
|
3,400
|
|
|
282,178
|
|
Advertising and promotion expenses
|
73,562
|
|
|
—
|
|
|
73,562
|
|
Other selling and administrative expenses
|
330,829
|
|
|
—
|
|
|
330,829
|
|
Operating loss
|
(125,613
|
)
|
|
3,400
|
|
|
(122,213
|
)
|
Loss before income taxes
|
(145,671
|
)
|
|
3,400
|
|
|
(142,271
|
)
|
Net loss
|
(113,231
|
)
|
|
2,275
|
|
|
(110,956
|
)
|
Net loss income per common share - basic
|
$
|
(0.33
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.32
|
)
|
Weighted average number of common shares
|
342,914
|
|
|
—
|
|
|
342,914
|
|
Net loss per common share - diluted
|
$
|
(0.33
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.32
|
)
|
Weighted average number of common and potential common shares
|
342,914
|
|
|
—
|
|
|
342,914
|
|
Dividends declared per common share
|
$
|
0.38
|
|
|
$
|
—
|
|
|
$
|
0.38
|
|