Quarterly Report (10-q)

Date : 04/26/2019 @ 11:07AM
Source : Edgar (US Regulatory)
Stock : Mattel, Inc. (MAT)
Quote : 10.52  -0.21 (-1.96%) @ 3:52PM

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ___________________________________________________________ 
FORM 10-Q
  ___________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019.
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                     to  
Commission File Number 001-05647
___________________________________________________________ 
MATTEL, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________________ 
Delaware
 
95-1567322
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
333 Continental Blvd.
El Segundo, CA
 
90245-5012
 
(Address of principal executive offices)
 
(Zip Code)
(310) 252-2000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report):
NONE
___________________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨   
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
Number of shares outstanding of registrant’s common stock, $1.00 par value, as of April 12, 2019 :
345,425,041 shares

1



MATTEL, INC. AND SUBSIDIARIES

 
 
Page
 
 
 
 
PART I
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  

2



(Cautionary Statement Under the Private Securities Litigation Reform Act of 1995)
Mattel is including this Cautionary Statement to caution investors and qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the "Act") for forward-looking statements. This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Act. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. The use of words such as "anticipates," "expects," "intends," "plans," "confident that" and "believes," among others, generally identify forward-looking statements. These forward-looking statements are based on currently available operating, financial, economic and other information, and are subject to a number of significant risks and uncertainties. A variety of factors, many of which are beyond our control, could cause actual future results to differ materially from those projected in the forward-looking statements. Specific factors that might cause such a difference include, but are not limited to: (i) Mattel’s ability to design, develop, produce, manufacture, source and ship products on a timely and cost-effective basis, as well as interest in and purchase of those products by retail customers and consumers in quantities and at prices that will be sufficient to profitably recover Mattel’s costs; (ii) downturns in economic conditions affecting Mattel’s markets which can negatively impact retail customers and consumers, and which can result in lower employment levels, lower consumer disposable income and spending, including lower spending on purchases of Mattel’s products; (iii) other factors which can lower discretionary consumer spending, such as higher costs for fuel and food, drops in the value of homes or other consumer assets, and high levels of consumer debt; (iv) potential difficulties or delays Mattel may experience in implementing cost savings and efficiency enhancing initiatives; (v) other economic and public health conditions or regulatory changes in the markets in which Mattel and its customers and suppliers operate, which could create delays or increase Mattel’s costs, such as higher commodity prices, labor costs or transportation costs, or outbreaks of disease; (vi) currency fluctuations, including movements in foreign exchange rates, which can lower Mattel’s net revenues and earnings, and significantly impact Mattel’s costs; (vii) the concentration of Mattel’s customers, potentially increasing the negative impact to Mattel of difficulties experienced by any of Mattel’s customers, including the bankruptcy and liquidation of Toys "R" Us, Inc., or changes in their purchasing or selling patterns; (viii) the future willingness of licensors of entertainment properties for which Mattel currently has licenses or would seek to have licenses in the future to license those products to Mattel; (ix) the inventory policies of Mattel’s retail customers, including retailers’ potential decisions to lower their inventories, even if it results in lost sales, as well as the concentration of Mattel’s revenues in the second half of the year, which coupled with reliance by retailers on quick response inventory management techniques increases the risk of underproduction of popular items, overproduction of less popular items and failure to achieve compressed shipping schedules; (x) the increased costs of developing more sophisticated digital and smart technology products, and the corresponding supply chain and design challenges associated with such products; (xi) work disruptions, which may impact Mattel’s ability to manufacture or deliver product in a timely and cost-effective manner; (xii) the bankruptcy and liquidation of Toys "R" Us, Inc. or other of Mattel’s significant retailers, or the general lack of success of one of Mattel’s significant retailers which could negatively impact Mattel’s revenues or bad debt exposure; (xiii) the impact of competition on revenues, margins and other aspects of Mattel’s business, including the ability to offer products which consumers choose to buy instead of competitive products, the ability to secure, maintain and renew popular licenses and the ability to attract and retain talented employees; (xiv) the risk of product recalls or product liability suits and costs associated with product safety regulations; (xv) changes in laws or regulations in the United States and/or in other major markets, such as China, in which Mattel operates, including, without limitation, with respect to taxes, tariffs, trade policies, or product safety, which may increase Mattel’s product costs and other costs of doing business, and reduce Mattel’s earnings, (xvi) failure to realize the planned benefits from any investments or acquisitions made by Mattel, (xvii) the impact of other market conditions, third party actions or approvals and competition which could reduce demand for Mattel’s products or delay or increase the cost of implementation of Mattel’s programs or alter Mattel’s actions and reduce actual results; (xviii) changes in financing markets or the inability of Mattel to obtain financing on attractive terms (xix) the impact of litigation or arbitration decisions or settlement actions; and (xx) other risks and uncertainties detailed in Part 1, Item 1A "Risk Factors" in Mattel’s 2018 Annual Report on Form 10-K. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so, except as required by law.

3



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(Unaudited; in thousands, except share data)
ASSETS
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and equivalents
$
380,107

 
$
526,724

 
$
594,481

Accounts receivable, net
624,477

 
676,119

 
970,083

Inventories
615,828

 
677,732

 
542,889

Prepaid expenses and other current assets
274,674

 
341,095

 
244,987

Total current assets
1,895,086

 
2,221,670

 
2,352,440

Noncurrent Assets
 
 
 
 
 
Property, plant, and equipment, net
622,251

 
756,684

 
657,595

Right-of-use assets, net
327,419

 

 

Goodwill
1,388,758

 
1,397,217

 
1,386,424

Other noncurrent assets
848,853

 
928,519

 
847,006

Total Assets
$
5,082,367

 
$
5,304,090

 
$
5,243,465

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

 
$

 
$
4,176

Accounts payable
324,949

 
398,360

 
537,965

Accrued liabilities
661,911

 
578,909

 
700,421

Income taxes payable
19,409

 
9,910

 
10,046

Total current liabilities
1,006,269

 
987,179

 
1,252,608

Noncurrent Liabilities
 
 
 
 
 
Long-term debt
2,853,454

 
2,871,771

 
2,851,723

Noncurrent lease liabilities
294,812

 

 

Other noncurrent liabilities
409,315

 
462,674

 
469,669

Total noncurrent liabilities
3,557,581

 
3,334,445

 
3,321,392

Stockholders’ Equity
 
 
 
 
 
Common stock $1.00 par value, 1.0 billion shares authorized; 441.4 million shares issued
441,369

 
441,369

 
441,369

Additional paid-in capital
1,822,718

 
1,817,139

 
1,812,682

Treasury stock at cost: 95.9 million shares, 97.4 million shares, and 96.1 million shares, respectively
(2,353,175
)
 
(2,385,850
)
 
(2,354,617
)
Retained earnings
1,445,539

 
1,848,957

 
1,629,257

Accumulated other comprehensive loss
(837,934
)
 
(739,149
)
 
(859,226
)
Total stockholders’ equity
518,517

 
982,466

 
669,465

Total Liabilities and Stockholders’ Equity
$
5,082,367

 
$
5,304,090

 
$
5,243,465

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

4



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
For the Three Months Ended
March 31,
2019
 
March 31,
2018
 
(Unaudited; in thousands, except per share amounts)
Net Sales
$
689,246

 
$
708,372

Cost of sales
449,456

 
489,499

Gross Profit
239,790

 
218,873

Advertising and promotion expenses
69,465

 
70,837

Other selling and administrative expenses
301,284

 
424,617

Operating Loss
(130,959
)
 
(276,581
)
Interest expense
46,958

 
41,079

Interest (income)
(2,272
)
 
(3,147
)
Other non-operating expense (income), net
1,904

 
(608
)
Loss Before Income Taxes
(177,549
)
 
(313,905
)
Provision for (benefit from) income taxes
6,169

 
(2,652
)
Net Loss
$
(183,718
)
 
$
(311,253
)
Net Loss Per Common Share - Basic
$
(0.53
)
 
$
(0.90
)
Weighted average number of common shares
345,852

 
344,434

Net Loss Per Common Share - Diluted
$
(0.53
)
 
$
(0.90
)
Weighted average number of common and potential common shares
345,852

 
344,434


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

5



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(Unaudited; in thousands)
Net Loss
$
(183,718
)
 
$
(311,253
)
Other Comprehensive Income, Net of Tax

 

Currency translation adjustments
14,133

 
41,989

Defined benefit pension plan adjustments
223

 
1,616

Net unrealized gains (losses) on available-for-sale security
1,877

 
(80
)
Net unrealized gains (losses) on derivative instruments:

 

Unrealized holding gains (losses)
5,818

 
(5,319
)
Reclassification adjustment for realized (losses) gains included in net loss
(759
)
 
4,431

 
5,059

 
(888
)
Other Comprehensive Income, Net of Tax
21,292

 
42,637

Comprehensive Loss
$
(162,426
)
 
$
(268,616
)

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

6



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Three Months Ended
March 31,
2019
 
March 31,
2018
 
(Unaudited; in thousands)
Cash Flows From Operating Activities:
 
 
 
Net loss
$
(183,718
)
 
$
(311,253
)
Adjustments to reconcile net loss to net cash flows used for operating activities:
 
 
 
Depreciation
52,071

 
58,539

Amortization
10,429

 
10,198

Share-based compensation
11,865

 
14,423

Bad debt expense
2,745

 
58,837

Inventory obsolescence
21,452

 
19,949

Deferred income taxes
(66
)
 
(1,026
)
Increase (decrease) from changes in assets and liabilities:
 
 
 
Accounts receivable
351,450

 
402,927

Inventories
(94,698
)
 
(100,347
)
Prepaid expenses and other current assets
(28,417
)
 
(40,052
)
Accounts payable, accrued liabilities, and income taxes payable
(327,821
)
 
(367,298
)
Other, net
(8,102
)
 
(18,629
)
Net cash flows used for operating activities
(192,810
)
 
(273,732
)
Cash Flows From Investing Activities:
 
 
 
Purchases of tools, dies, and molds
(10,706
)
 
(21,013
)
Purchases of other property, plant, and equipment
(13,409
)
 
(26,424
)
Proceeds from foreign currency forward exchange contracts, net
4,703

 
23,250

Other, net
212

 
(6,675
)
Net cash flows used for investing activities
(19,200
)
 
(30,862
)
Cash Flows From Financing Activities:
 
 
 
Payments of short-term borrowings
(4,176
)
 

Payments of long-term borrowings

 
(250,000
)
Other, net
(173
)
 
(1,516
)
Net cash flows used for financing activities
(4,349
)
 
(251,516
)
Effect of Currency Exchange Rate Changes on Cash
1,985

 
3,613

Decrease in Cash and Equivalents
(214,374
)
 
(552,497
)
Cash and Equivalents at Beginning of Period
594,481

 
1,079,221

Cash and Equivalents at End of Period
$
380,107

 
$
526,724

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


7



MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Common
Stock
 
Additional
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
(Unaudited; in thousands)
Balance, December 31, 2018
$
441,369

 
$
1,812,682

 
$
(2,354,617
)
 
$
1,629,257

 
$
(859,226
)
 
$
669,465

Net loss

 

 

 
(183,718
)
 

 
(183,718
)
Other comprehensive income, net of tax

 

 

 

 
21,292

 
21,292

Issuance of treasury stock for restricted stock units vesting

 
(1,829
)
 
1,442

 

 

 
(387
)
Share-based compensation

 
11,865

 

 

 

 
11,865

Balance, March 31, 2019
$
441,369

 
$
1,822,718

 
$
(2,353,175
)
 
$
1,445,539

 
$
(837,934
)
 
$
518,517

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
$
441,369

 
$
1,808,391

 
$
(2,389,877
)
 
$
2,179,358

 
$
(781,786
)
 
$
1,257,455

Cumulative effect of accounting change

 

 

 
(19,148
)
 

 
(19,148
)
Net loss

 

 

 
(311,253
)
 

 
(311,253
)
Other comprehensive income, net of tax

 

 

 

 
42,637

 
42,637

Issuance of treasury stock for restricted stock units vesting

 
(5,675
)
 
4,027

 

 

 
(1,648
)
Share-based compensation

 
14,423

 

 

 

 
14,423

Balance, March 31, 2018
$
441,369

 
$
1,817,139

 
$
(2,385,850
)
 
$
1,848,957

 
$
(739,149
)
 
$
982,466

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

8



MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation
The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments, consisting of only those of a normal recurring nature, considered necessary for a fair statement of the financial position and interim results of Mattel, Inc. and its subsidiaries ("Mattel") as of and for the periods presented have been included.
Mattel adopted Accounting Standards Update ("ASU") No. 2016-02—Leases (Topic 842) and its related amendments (collectively "the new lease standard") on January 1, 2019 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods, as further discussed in " Note 5 to the Consolidated Financial Statements—Leases."
Mattel modified its reporting structure for revenues and reorganized its regional sales reporting structure in the first quarter of 2019. Prior period amounts have been reclassified to conform to the current period presentation, as further discussed in " Note 23 to the Consolidated Financial Statements—Segment Information."
The December 31, 2018 balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the consolidated financial statements do not include all the annual disclosures required by GAAP. As Mattel’s business is seasonal, results for interim periods are not necessarily indicative of those that may be expected for a full year. The financial information included herein should be read in conjunction with Mattel’s consolidated financial statements and related notes in its 2018 Annual Report on Form 10-K.
2.
Accounts Receivable
Accounts receivable are net of allowances for doubtful accounts of $24.3 million , $24.9 million , and $22.0 million as of March 31, 2019 March 31, 2018 , and December 31, 2018 , respectively. During the first quarter of 2018, as a result of the Toys "R" Us liquidation, Mattel reversed net sales and related accounts receivable of approximately $30 million and recorded bad debt expense of approximately $57 million .
3.
Inventories
Inventories include the following:
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
Raw materials and work in process
$
118,143

 
$
119,704

 
$
115,966

Finished goods
497,685

 
558,028

 
426,923

 
$
615,828

 
$
677,732

 
$
542,889



9



4.
Property, Plant, and Equipment
Property, plant, and equipment, net includes the following:  
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
Land
$
25,071

 
$
25,197

 
$
25,023

Buildings
298,022

 
298,780

 
294,227

Machinery and equipment
885,178

 
896,388

 
875,308

Software
398,071

 
387,551

 
400,488

Tools, dies, and molds
814,078

 
877,181

 
831,743

Capital leases

 
23,927

 
23,927

Leasehold improvements
241,769

 
245,299

 
240,636


2,662,189

 
2,754,323

 
2,691,352

Less: accumulated depreciation
(2,039,938
)
 
(1,997,639
)
 
(2,033,757
)
 
$
622,251

 
$
756,684

 
$
657,595


5. Leases
Mattel adopted the new lease standard on January 1, 2019 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. Mattel elected the package of practical expedients permitted under the transition guidance within the new lease standard, which among other things, allowed Mattel to continue to account for existing leases based on the historical lease classification. Mattel also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.
Mattel determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Mattel’s leases are primarily related to property leases for its retail stores, warehouses, and corporate offices. Mattel's leases have remaining lease terms of one to 14 years, and often include one or more options to renew for up to 10 years. Renewal and termination options are included in the lease term when it is reasonably certain that Mattel will exercise the option.
In addition, certain of Mattel’s lease agreements include contingent rental payments based on a percentage of sales. Contingent rental expense is recorded in the period in which the contingent event becomes probable. Mattel's lease agreements do not contain any material residual guarantees or material restrictive covenants.
ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of Mattel's leases do not provide an implicit rate, Mattel uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Based on the present value of lease payments for Mattel's existing leases, Mattel recorded net lease assets and lease liabilities of approximately $343 million and $390 million , respectively, upon adoption. The net lease assets were adjusted for deferred rent, lease incentives, and prepaid rent. Mattel had no material finance leases. The new lease standard did not materially impact Mattel's consolidated statements of operations and had no impact on Mattel's consolidated statements of cash flows.

10


The impact of the new lease standard on the March 31, 2019 consolidated balance sheet was as follows:
 
March 31,
2019
 
(In thousands, except years and percentage information)
Right-of-use assets, net
$
327,419

 
 
Accrued liabilities
$
77,092

Noncurrent lease liabilities
294,812

Total lease liabilities, net
$
371,904

 
 
Weighted average remaining lease term
6.8 years

 
 
Weighted average discount rate
8.3
%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the three months ended March 31, 2019 were $34.1 million , which included approximately $9 million related to short-term and variable lease costs.
Supplemental cash flow information related to leases was as follows:
 
March 31,
2019
 
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows
$
26,426


The following table shows the future maturities of lease liabilities for leases in effect as of March 31, 2019:
Years Ending December 31,
 
Lease Liabilities
 
 
(In thousands)
2019 (excluding the three months ended March 31, 2019)
 
$
78,289

2020
 
91,791

2021
 
76,050

2022
 
56,502

2023
 
42,406

Thereafter
 
149,099

Total lease payments
 
494,137

Less: imputed interest
 
(122,233
)
Total
 
$
371,904



11


As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease standard (Topic 840), future minimum obligations under lease commitments in effect at December 31, 2018 were as follows:
 
Capital
Leases
 
Operating
Leases
 
(In thousands)
2019
$
294

  
$
110,794

2020
25

  
83,566

2021

  
72,606

2022

  
59,191

2023

  
56,123

Thereafter

  
133,716

 
$
319

(a) 
$
515,996


_______________________________________
(a)
Includes minimal imputed interest.
Rental expense under operating leases were $127.1 million for 2018 .
6.
Goodwill
Goodwill is allocated to various reporting units, which are at the operating segment level, for the purpose of evaluating whether goodwill is impaired. Mattel’s reporting units are: (i) North America, (ii) International, and (iii) American Girl. Mattel tests its goodwill for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value.
The change in the carrying amount of goodwill by operating segment for the three months ended March 31, 2019 is shown below. Brand-specific goodwill held by foreign subsidiaries is allocated to the North America operating segment, thereby causing a foreign currency translation impact.
 
December 31,
2018
 
Currency
Exchange Rate
Impact
 
March 31,
2019
 
(In thousands)
North America
$
731,234

 
$
632

 
$
731,866

International
447,619

 
1,702

 
449,321

American Girl
207,571

 

 
207,571

 
$
1,386,424

 
$
2,334

 
$
1,388,758


7.
Other Noncurrent Assets
Other noncurrent assets include the following:  
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
Identifiable intangibles (net of accumulated amortization of $218.3 million, $179.0 million, and $207.9 million, respectively)
$
580,497

 
$
635,143

 
$
587,528

Deferred income taxes
50,510

 
78,922

 
49,937

Other
217,846

 
214,454

 
209,541

 
$
848,853

 
$
928,519

 
$
847,006


Mattel tests its amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Amortizable intangible assets were not impaired during the three months ended March 31, 2019 .

12



8.
Accrued Liabilities
Accrued liabilities include the following:  
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
Current lease liabilities
$
77,092

 
$

 
$

Advertising and promotion
56,553

 
72,179

 
86,935

Royalties
46,483

 
46,698

 
108,109

Taxes other than income taxes
28,202

 
28,281

 
54,317

Other
453,581

 
431,751

 
451,060

 
$
661,911

 
$
578,909

 
$
700,421


9.
Seasonal Financing
On December 20, 2017, Mattel, Inc. entered into a syndicated facility agreement (as amended, the "Credit Agreement"), as a borrower thereunder (in such capacity, the "Borrower"), along with certain of the Borrower’s other subsidiaries as additional borrowers and/or guarantors thereunder, providing for $1.60 billion in aggregate principal amount of senior secured revolving credit facilities (the "senior secured revolving credit facilities"), consisting of (i) an asset based lending facility with aggregate commitments of $1.31 billion , subject to borrowing base capacity, secured by substantially all of the accounts receivable and inventory of the Borrower and its subsidiaries who are borrowers and/or guarantors under the Credit Agreement, as well as (ii) a revolving credit facility with $294.0 million in aggregate commitments secured by certain fixed assets and intellectual property and various equity interests in the borrower and guarantor subsidiaries under the Credit Agreement. The senior secured revolving credit facilities will mature on June 1, 2021.
Borrowings under the senior secured revolving credit facilities 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.
Mattel had no borrowings under the senior secured revolving credit facilities as of March 31, 2019, March 31, 2018, and December 31, 2018. Outstanding letters of credit under the senior secured revolving credit facilities totaled approximately $70 million , $42 million , and $89 million as of March 31, 2019 , March, 31, 2018, and December 31, 2018 , respectively.
The Credit Agreement contains customary covenants, including, but not limited to, restrictions on the Borrower’s and its subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances, or investments, pay dividends, sell or otherwise transfer assets outside of the ordinary course, optionally prepay or modify terms of any junior indebtedness, enter into transactions with affiliates, or change their line of business.
The Credit Agreement requires the maintenance of a fixed charge coverage ratio of 1.00 to 1.00 at the end of each fiscal quarter when excess availability under the senior secured revolving credit facilities is less than the greater of (x) $100 million and (y) 10% of the aggregate amount available thereunder (the "Availability Threshold") and on the last day of each subsequent fiscal quarter ending thereafter until no event of default exists and excess availability is greater than the Availability Threshold for at least 30 consecutive days.

13



Since the execution of the Credit Agreement, the fixed charge coverage ratio covenant has not been in effect as no event of default has occurred and as Mattel's excess availability has been greater than $100 million and the Availability Threshold. As of March 31, 2019 , Mattel was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement is a material agreement, and failure to comply with the covenants may result in an event of default under the terms of the senior secured revolving credit facilities. If Mattel were to default under the terms of the senior secured revolving credit facilities, its ability to meet its seasonal financing requirements could be adversely affected.
10.
Long-Term Debt
Long-term debt includes the following:
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
2010 Senior Notes due October 2020 and October 2040
$
500,000

 
$
500,000

 
$
500,000

2011 Senior Notes due November 2041
300,000

 
300,000

 
300,000

2013 Senior Notes due March 2023
250,000

 
250,000

 
250,000

2014 Senior Notes due May 2019

 
500,000

 

2016 Senior Notes due August 2021
350,000

 
350,000

 
350,000

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

 
1,000,000

 
1,500,000

Debt issuance costs and debt discount
(46,546
)
 
(28,229
)
 
(48,277
)

2,853,454

 
2,871,771

 
2,851,723

Less: current portion

 

 

Total long-term debt
$
2,853,454

 
$
2,871,771

 
$
2,851,723



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"). 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.
11.
Other Noncurrent Liabilities
Other noncurrent liabilities include the following:
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
Benefit plan liabilities
$
183,294

 
$
186,114

 
$
166,289

Noncurrent tax liabilities
143,723

 
127,912

 
150,960

Other
82,298

 
148,648

 
152,420

 
$
409,315

 
$
462,674

 
$
469,669



14



12.
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 Three Months Ended March 31, 2019
 
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, 2018
$
11,411

 
$
(6,547
)
 
$
(142,763
)
 
$
(721,327
)
 
$
(859,226
)
Other comprehensive income (loss) before reclassifications
5,818

 
1,877

 
(1,206
)
 
14,133

 
20,622

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

 
1,429

 

 
670

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

 
1,877

 
223

 
14,133

 
21,292

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

 
$
(4,670
)
 
$
(142,540
)
 
$
(707,194
)
 
$
(837,934
)

 
For the Three Months Ended March 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 (loss) income before reclassifications
(5,319
)
 
(80
)
 
(208
)
 
41,989

 
36,382

Amounts reclassified from accumulated other comprehensive loss
4,431

 

 
1,824

 

 
6,255

Net (decrease) increase in other comprehensive (loss)  income
(888
)
 
(80
)
 
1,616

 
41,989

 
42,637

Accumulated Other Comprehensive Loss, Net of Tax, as of March 31, 2018
$
(21,986
)
 
$
(2,879
)
 
$
(141,597
)
 
$
(572,687
)
 
$
(739,149
)

15



The following table presents the classification and amount of the reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations:
 
For the Three Months Ended
 
 
 
March 31,
2019
 
March 31,
2018
 
Statements of Operations
Classification
 
(In thousands)
 
 
Derivative Instruments
 
Gain (loss) on foreign currency forward exchange contracts
$
927

 
$
(4,383
)
 
Cost of sales
Tax effect of net gain (loss)
(168
)
 
(48
)
 
Provision for (benefit from) income taxes

$
759

 
$
(4,431
)
 
Net loss
Defined Benefit Pension Plans
 
 
 
 
 
Amortization of prior service credit (a)
$
493

 
$
501

 
Other non-operating expense (income), net
Recognized actuarial loss (a)
(1,737
)
 
(2,317
)
 
Other non-operating expense (income), net
Settlement loss

 
(42
)
 
Other non-operating expense (income), net

(1,244
)
 
(1,858
)
 
 
Tax effect of net loss
(185
)
 
34

 
Provision for (benefit from) income taxes

$
(1,429
)
 
$
(1,824
)
 
Net loss
 _______________________________________
(a)
The amortization of prior service credit and recognized actuarial loss are included in the computation of net periodic benefit cost. Refer to " Note 16 to the Consolidated Financial Statements—Employee Benefit Plans" of this Quarterly Report on Form 10-Q for additional information regarding Mattel’s net periodic benefit cost.
Currency Translation Adjustments
Mattel’s reporting currency is the U.S. dollar. The translation of its net investments in subsidiaries with non-U.S. dollar functional currencies subjects Mattel to the impact of currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars at fiscal period-end exchange rates. Income, expense, and cash flow items are translated at weighted average exchange rates prevailing during the fiscal period. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Currency translation adjustments resulted in a net gain of $14.1 million for the three months ended March 31, 2019 , primarily due to the strengthening of the British pound sterling and Russian ruble against the U.S. dollar. Currency translation adjustments resulted in a net gain of $42.0 million for the three months ended March 31, 2018 , primarily due to the strengthening of the Euro, British pound sterling, and Mexican peso against the U.S. dollar.
13.
Derivative Instruments
Mattel seeks to mitigate its exposure to foreign currency transaction risk by monitoring its foreign currency transaction exposure for the year and partially hedging such exposure using foreign currency forward exchange contracts. Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its purchases and sales of inventory denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months . These derivative instruments have been designated as effective cash flow hedges, whereby the unsettled hedges are reported in Mattel’s consolidated balance sheets at fair value, with changes in the fair value of the hedges reflected in other comprehensive income ("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 March 31, 2019 March 31, 2018 , and December 31, 2018 , Mattel held foreign currency forward exchange contracts with notional amounts of $1.10 billion , $1.10 billion , and $962.1 million , respectively.

16



The following tables present Mattel’s derivative assets and liabilities:
 
Derivative Assets
 
Fair Value
 
Balance Sheet Classification
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
 
(In thousands)
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
$
16,703

 
$
1,787

 
$
12,122

 
Prepaid expenses and other
current assets
Foreign currency forward exchange contracts
3,041

 
390

 
1,613

 
Other noncurrent assets
Total derivatives designated as hedging instruments
$
19,744

 
$
2,177

 
$
13,735

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
$
377

 
$
1,424

 
$
2,357

 
Prepaid expenses and other
current assets
Total
$
20,121

 
$
3,601

 
$
16,092

 
 
 
 
 
 
 
 
 
 
 
Derivative Liabilities
 
Fair Value
 
Balance Sheet Classification
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
 
(In thousands)
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
$
1,045

 
$
17,456

 
$
954

 
Accrued liabilities
Foreign currency forward exchange contracts
146

 
1,419

 
185

 
Other noncurrent liabilities
Total derivatives designated as hedging instruments
$
1,191

 
$
18,875

 
$
1,139

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:

 

 

 
 
Foreign currency forward exchange contracts
$
4,992

 
$
4,663

 
$
1,771

 
Accrued liabilities
Total
$
6,183

 
$
23,538

 
$
2,910

 
 

The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations:
 
For the Three Months Ended
 
 
 
March 31, 2019
 
March 31, 2018
 
Statements of
Operations
Classification
 
Amount of Gain Recognized in OCI
 
Amount of Gain Reclassified from Accumulated OCI to Statement of Operations
 
Amount of (Loss) Recognized in OCI
 
Amount of (Loss) Reclassified from Accumulated OCI to Statement of Operations
 
 
(In thousands)
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
$
5,818

 
$
759

 
$
(5,319
)
 
$
(4,431
)
 
Cost of sales

The net gain of $0.8 million and the net loss of $4.4 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three months ended March 31, 2019 and 2018 , respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.

17



 
Amount of (Loss) Gain Recognized in the Statements of Operations
 
Statements of Operations
Classification
 
For the Three Months Ended
 
 
March 31,
2019
 
March 31,
2018
 
 
(In thousands)
 
 
Derivatives not designated as hedging instruments:
 
Foreign currency forward exchange contracts
$
(498
)
 
$
14,688

 
Other non-operating expense (income), net

The net loss of $0.5 million and net gain of $14.7 million recognized in the consolidated statements of operations for the three months ended March 31, 2019 and 2018 , respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.
14.
Fair Value Measurements
The following tables present information about Mattel’s assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of March 31, 2019 March 31, 2018 , and December 31, 2018 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.

18



Mattel’s financial assets and liabilities include the following:
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Foreign currency forward exchange contracts (a)
$

 
$
20,121

 
$

 
$
20,121

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

 

 

 
7,150

Total assets
$
7,150

 
$
20,121

 
$

 
$
27,271

Liabilities:

 

 

 

Foreign currency forward exchange contracts (a)
$

 
$
6,183

 
$

 
$
6,183

 
 
 
 
 
 
 
 
 
March 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Foreign currency forward exchange contracts (a)
$

 
$
3,601

 
$

 
$
3,601

Available-for-sale security (b)
8,911

 

 

 
8,911

Total assets
$
8,911

 
$
3,601

 
$

 
$
12,512

Liabilities:

 

 

 

Foreign currency forward exchange contracts (a)
$

 
$
23,538

 
$

 
$
23,538

 
 
 
 
 
 
 
 
 
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 security (b)
5,243

 

 

 
5,243

Total assets
$
5,243

 
$
16,092

 
$

 
$
21,335

Liabilities:

 

 

 

Foreign currency forward exchange contracts (a)
$

 
$
2,910

 
$

 
$
2,910

 ____________________________________________
(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.
Other Financial Instruments
Mattel’s financial instruments include cash and equivalents, accounts receivable and payable, accrued liabilities, short-term borrowings, and long-term debt. The fair values of these instruments, excluding long-term debt, approximate their carrying values because of their short-term nature. Cash and equivalents are classified as Level 1 and all other financial instruments are classified as Level 2 within the fair value hierarchy.
The estimated fair value of Mattel’s long-term debt, including the current portion, was $2.71 billion (compared to a carrying value of $2.90 billion ) as of March 31, 2019 , $2.68 billion (compared to a carrying value of $2.90 billion ) as of March 31, 2018 , and $2.49 billion (compared to a carrying value of $2.90 billion ) as of December 31, 2018 . 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.

19



15.
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 restricted stock units ("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 three months ended March 31, 2019 and 2018 :  
 
For the Three Months Ended
 
March 31,
2019

March 31,
2018
 
(In thousands, except per share amounts)
Basic:
 
 
 
Net loss
$
(183,718
)
 
$
(311,253
)
Less: Net loss allocable to participating RSUs (a)

 

Net loss available for basic common shares
$
(183,718
)
 
$
(311,253
)
Weighted average common shares outstanding
345,852

 
344,434

Basic net loss per common share
$
(0.53
)
 
$
(0.90
)
Diluted:
 
 
 
Net loss
$
(183,718
)
 
$
(311,253
)
Less: Net loss allocable to participating RSUs (a)

 

Net loss available for diluted common shares
$
(183,718
)
 
$
(311,253
)
Weighted average common shares outstanding
345,852

 
344,434

Weighted average common equivalent shares arising from:

 

Dilutive stock options and non-participating RSUs (b)

 

Weighted average number of common and potential common shares
345,852

 
344,434

Diluted net loss per common share
$
(0.53
)
 
$
(0.90
)
 _______________________________________
(a)
Mattel did not have participating RSUs for the three months ended March 31, 2019 . For the three months ended March 31, 2018, Mattel did not allocate its net loss to its participating RSUs as its participating RSUs were not obligated to share in the losses of the Company.
(b)
Mattel was in a net loss position for the three months ended March 31, 2019 and 2018 , 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.
16.
Employee Benefit Plans
Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all employees of these companies, which are more fully described in Part II, Item 8 "Financial Statements and Supplementary Data— Note 4 to the Consolidated Financial Statements–Employee Benefit Plans" in its 2018 Annual Report on Form 10-K.

20



A summary of the components of net periodic benefit cost for Mattel’s defined benefit pension plans is as follows:
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Service cost
$
956

 
$
1,084

Interest cost
4,840

 
4,642

Expected return on plan assets
(5,444
)
 
(5,674
)
Amortization of prior service cost
16

 
8

Recognized actuarial loss
1,833

 
2,397

Settlement loss

 
42


$
2,201

 
$
2,499


A summary of the components of net periodic benefit credit for Mattel's postretirement benefit plans is as follows:
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Interest cost
$
50

 
$
52

Amortization of prior service credit
(509
)
 
(509
)
Recognized actuarial gain
(96
)
 
(80
)

$
(555
)
 
$
(537
)

During the three months ended March 31, 2019 , Mattel made cash contributions totaling approximately $ 1 million related to its defined benefit pension and postretirement benefit plans. During the remainder of 2019 , Mattel expects to make additional cash contributions of approximately $5 million .
17.
Share-Based Payments
Mattel has various stock compensation plans, which are more fully described in Part II, Item 8 "Financial Statements and Supplementary Data— Note 8 to the Consolidated Financial Statements—Share-Based Payments" in its 2018 Annual Report on Form 10-K. Under the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan, Mattel has the ability to grant nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, RSUs, performance awards, dividend equivalent rights, and shares of common stock to officers, employees, and other persons providing services to Mattel. Stock options are granted with exercise prices at the fair market value of Mattel’s common stock on the applicable grant date and expire no later than 10 years from the date of grant. Stock options and RSUs generally provide for vesting over a period of three years from the date of grant.
As of March 31, 2019 , two long-term incentive programs were in place with the following performance cycles: (i) a January 1, 2017–December 31, 2019 performance cycle and (ii) a January 1, 2018–December 31, 2020 performance cycle.
Compensation expense, included within other selling and administrative expenses in the consolidated statements of operations, related to stock options and RSUs is as follows:
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Stock option compensation expense
$
2,406

 
$
2,684

RSU compensation expense (a)
9,459

 
11,739

 
$
11,865

 
$
14,423

 _______________________________________
(a)
Includes compensation expense of $0.8 million associated with Mattel's long-term incentive programs for the three months ended March 31, 2019 .

21



As of March 31, 2019 , total unrecognized compensation cost related to unvested share-based payments totaled $83.0 million and is expected to be recognized over a weighted-average period of 2.0 years.
Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises and the vesting of RSUs. No cash was received for stock option exercises during the three months ended March 31, 2019 and 2018 .
18.
Other Selling and Administrative Expenses
Other selling and administrative expenses include the following:
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Design and development
$
42,445

 
$
52,140

Identifiable intangible asset amortization
10,429

 
10,198


19.
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 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 (income), 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, Australian dollar, Canadian dollar, Russian ruble, and Brazilian real were the primary transactions that caused foreign currency transaction exposure for Mattel in the first quarter of 2019 .
Currency transaction (losses) gains included in the consolidated statements of operations are as follows:
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Operating (loss) income
$
(3,770
)
 
$
7,731

Other non-operating (expense) income, net
(1,668
)
 
587

Net transaction (losses) gains
$
(5,438
)
 
$
8,318


20.
Restructuring Charges
During the third quarter of 2017, Mattel initiated its Structural Simplification cost savings program and remains on-track to exceed $650 million in run-rate savings exiting 2019.
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.
During the three months ended March 31, 2019 and 2018, in connection with the Structural Simplification cost savings program, Mattel recorded severance and other restructuring charges of $8.7 million and $24.9 million , respectively, within other selling and administrative expenses in the consolidated statements of operations, which is included in corporate and other expense in "Note 23 to the Consolidated Financial Statements—Segment Information."

22



The following table summarizes Mattel's severance and other restructuring costs activity for the three months ended March 31, 2019:
 
Liability at December 31, 2018
 
 Charges
 
Payments/Utilization
 
Liability at March 31, 2019
 
(In thousands)
Severance
$
27,670

 
$
2,958

 
$
(12,673
)
 
$
17,955

Other restructuring costs (a)
13,722

 
5,773

 
(7,689
)
 
11,806

 
$
41,392

 
$
8,731

 
$
(20,362
)
 
$
29,761

______________________________________________________________________
(a)
Consists primarily of consulting fees.
To date, Mattel has recorded cumulative severance and other restructuring charges of $163.7 million and expects to incur total severance and restructuring charges of approximately $200 million related to the Structural Simplification cost savings program.
21.
Income Taxes
Mattel’s provision for income taxes was $6.2 million for the three months ended March 31, 2019 , as compared to a benefit from income taxes of $2.7 million for the three months ended March 31, 2018 . During the three months ended March 31, 2019 and 2018, Mattel recognized net discrete tax expense of $1.5 million and $4.5 million , respectively, primarily related to reassessments of prior years' tax liabilities and income taxes recorded on a discrete basis in various jurisdictions. As a result of the establishment of a valuation allowance on U.S. deferred tax assets in 2017, there was no U.S. tax benefit provided for U.S. losses during the three months ended March 31, 2019 and 2018.
In the normal course of business, Mattel is regularly audited by federal, state, and foreign tax authorities. Based on the current status of federal, state, and foreign audits, Mattel believes it is reasonably possible that in the next twelve months, the total unrecognized tax benefits could decrease by approximately $6 million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate settlement of any particular issue with the applicable taxing authority could have a material impact on Mattel’s consolidated financial statements.
Mattel adopted ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income on January 1, 2019 . Under the Tax Cuts and Jobs Act (the "U.S. Tax Act"), deferred taxes were adjusted to reflect the reduction of the federal income tax rate to the newly enacted federal income tax rate, which left the tax effects on items within accumulated other comprehensive income (loss) stranded at historical tax rates. ASU 2018-02 permits the reclassification of disproportionate tax effects in accumulated other comprehensive income (loss) caused by the U.S. Tax Act to retained earnings.  Mattel elected not to reclassify income tax effects related to the U.S. Tax Act out of accumulated other comprehensive loss and into retained earnings.  Mattel releases tax effects from accumulated other comprehensive loss utilizing the portfolio approach with respect to pension and postretirement benefit plan obligations.
22.
Contingencies
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.

23



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.

24



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.

25



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. On April 18, 2019, Mattel filed its responsive 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.

26



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.


27



2017 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 and his opening appellate brief on February 25, 2019.
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.
2019 Securities Litigation
A purported class action lawsuit is pending in the United States District Court for the Central District of California (Wyatt v. Mattel, Inc., et al., filed March 6, 2019) against Mattel, Ynon Kreiz, and Joseph J. Euteneuer alleging federal securities laws violations in connection with statements allegedly made by the defendants during the period February 7, 2019 through February 15, 2019. In general, the lawsuit alleges 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 demand for and supply of Mattel’s products and the impact on Mattel’s business, operations, and prospects for 2019. The lawsuit alleges that the defendants’ conduct caused the plaintiff and other stockholders to purchase Mattel common stock at artificially inflated prices.
The lawsuit seeks unspecified compensatory damages, attorneys’ fees, expert fees, and/or costs. Mattel believes that the allegations in the lawsuit 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.
Class Action Litigation Related to the Fisher-Price Rock 'n Play Sleeper
Purported class action lawsuits against Fisher-Price, Inc. and Mattel, Inc. have been filed in the United States District Courts for the Western District of New York ( Drover-Mundy, et. al. v. Fisher-Price, Inc., et al. , filed April 18, 2019, and Mulvey v. Fisher-Price, Inc., et al. , filed April 19, 2019), the District of New Jersey ( Kimmel v. Fisher-Price, Inc., et al. , filed April 11, 2019), and the Central District of California ( Black v. Mattel, Inc., et al. , filed April 23, 2019). The lawsuits assert claims for false advertising, negligent product design, breach of warranty, fraud, and other claims in connection with the marketing and sale of the Fisher-Price Rock 'n Play Sleeper (the "Sleeper"). In general, the lawsuits allege that the Sleeper should not have been marketed and sold as safe and fit for prolonged and overnight sleep for infants. The lawsuits propose consumer classes comprised of those who purchased the Sleeper as marketed as safe for prolonged and overnight sleep, and/or a class of all children who sustained an injury or death due to the alleged defective design of the Sleeper, and their parents.
The lawsuits purport to certify classes nationwide and in particular states, and seek unspecified compensatory damages, punitive damages, statutory damages, restitution, disgorgement, attorneys’ fees, costs, interest, declaratory relief, and/or injunctive relief. Mattel believes that the allegations in the lawsuits are without merit and intends to vigorously defend against them. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time.
A fifth purported class action seeking to certify a consumer class, and seeking similar remedies, has been threatened against Fisher-Price and Mattel but has not yet been filed.

28



23.
Segment Information
Mattel designs, manufactures, and markets a broad variety of toy products worldwide, which are sold to its customers and directly to consumers. In the first quarter of 2019, there were no changes to Mattel's commercial operations which impacted its operating segments. However, Mattel modified its reporting structure for revenues, as outlined below, and reorganized its regional sales reporting structure within the International segment. Prior period amounts have been reclassified to conform to the current period presentation.
Dolls —including brands such as Barbie , American Girl, Enchantimals, and Polly Pocket.
Infant/Toddler/Preschool —including brands such as Fisher-Price and Thomas & Friends , Power Wheels, Fireman Sam, and Shimmer and Shine (Nickelodeon).
Vehicles —including brands such as Hot Wheels, Matchbox, and CARS (Disney Pixar).
Action Figures/Building Sets/Games —including brands such as MEGA, UNO , Toy Story (Disney Pixar), Jurassic World (Universal), and WWE.
Mattel’s operating segments are: (i) North America, which consists of the U.S. and Canada, (ii) International, and (iii) American Girl.  The North America and International segments sell products across categories, although some products are developed and adapted for particular international markets.
Segment Data
The following tables present information about revenues, loss , 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" and reconciled to net sales in the tables below). Mattel records these adjustments in its financial accounting systems at the time of sale to each customer, but the adjustments 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 from operations based on the adjustments recorded in the financial accounting systems. Segment loss represents each segment’s operating loss , while consolidated operating loss represents loss 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 compensation, corporate headquarters functions managed on a worldwide basis, and the impact of changes in foreign currency exchange rates on intercompany transactions.
 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Revenues by Segment
 
 
 
North America
$
369,391

 
$
348,390

International
365,178

 
384,134

American Girl
45,557

 
67,487

Gross sales
780,126

 
800,011

Sales adjustments
(90,880
)
 
(91,639
)
Net sales
$
689,246

 
$
708,372


29



 
For the Three Months Ended
 
March 31,
2019
 
March 31,
2018
 
(In thousands)
Segment Loss
 
 
 
North America (a)
$
(21,585
)
 
$
(106,750
)
International (a)
(24,303
)
 
(72,265
)
American Girl (a)
(14,254
)
 
(14,843
)
 
(60,142
)
 
(193,858
)
Corporate and other expense (b)
(70,817
)
 
(82,723
)
Operating loss
(130,959
)
 
(276,581
)
Interest expense
46,958

 
41,079

Interest (income)
(2,272
)
 
(3,147
)
Other non-operating expense (income), net
1,904

 
(608
)
Loss before income taxes
$
(177,549
)
 
$
(313,905
)
__________________________________________ 
(a)
Segment loss for the three months ended March 31, 2019 included a $27.3 million charge attributable to the Rock 'n Play product recall , all of which was recorded in the North America segment . For additional information, see "Note 25 to the Consolidated Financial Statements Subsequent Event." Segment loss for the three months ended March 31, 2018 included $86.8 million of net sales reversal and bad debt expense attributable to the Toys "R" Us liquidation. Of the $86.8 million of charges recognized for the three months ended March 31, 2018 , $71.6 million , $12.1 million , and $3.1 million was recorded in the North America, International, and American Girl segments, respectively.
(b)
Corporate and other expense included severance and restructuring expenses of $8.7 million and $24.9 million for the three months ended March 31, 2019 and 2018 , respectively, and share-based compensation expense of $11.9 million and $14.4 million for the three months ended March 31, 2019 and 2018 , respectively.
Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances.
 
March 31,
2019
 
March 31,
2018
 
December 31,
2018
 
(In thousands)
Assets by Segment
 
 
 
 
 
North America
$
520,812

 
$
523,535

 
$
615,654

International
569,214

 
620,718

 
728,870

American Girl
39,998

 
94,592

 
43,748

 
1,130,024

 
1,238,845