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.
Use of Estimates
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US 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 an allowance for excess quantities and obsolescence, are stated at the lower of cost or market. Inventory allowances are charged to cost of sales and establish 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 results of operations.
Goodwill and Intangible Assets
Goodwill is allocated to various reporting units, which are at the operating segment level, for purposes 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 tests its nonamortizable intangible assets, including trademarks and trade names, for impairment by comparing the estimated fair values of the nonamortizable intangible assets with the carrying values. Mattel tests nonamortizable intangible assets for impairment annually in the third quarter or whenever events or changes in circumstances indicate that the carrying value may exceed 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.
Foreign Currency Translation Exposure
Mattel’s reporting currency is the US dollar. The translation of its net investments in subsidiaries with non-US 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-US dollar functional currencies are translated into US dollars at year-end exchange rates. Income, expense, 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 2016 were related to its net investments in entities having functional currencies denominated in the British pound sterling, Mexican peso, Euro, 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 income in the consolidated statement 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 statement 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, Australian dollar, Brazilian real, Russian ruble, and Indonesian rupiah were the primary transactions that caused foreign currency transaction exposure for Mattel in 2016.
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 results 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 results 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 upon shipment or upon receipt of products by the customer, depending on the terms, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an agreement exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and collectibility is reasonably assured. Management assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging, and customer disputes to determine whether collectibility is reasonably assured. If collectibility is not considered reasonably assured at the time of sale, Mattel does not recognize revenue until collection occurs. Value added taxes are recorded on a net basis and are excluded from revenue. 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 are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. The costs of these programs are recorded as sales adjustments that reduce gross revenue in the period the related revenue 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 companies. 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. 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 US 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 based on the closing market price of Mattel’s common stock on the date of grant, adjusted by the present value of the expected dividend for RSUs that are not entitled to a dividend during the vest period.
In the fourth quarter of 2016, Mattel early adopted Accounting Standards Update ("ASU") 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of the accounting for employee share-based payment transactions for public entities. The new standard requires companies to recognize all excess tax benefits and tax deficiencies in the income statement when the awards vest or are settled. Upon adoption, Mattel recognized
$4.3 million
in discrete tax benefits related to share-based payment accounting, which is more fully described in "Note 3 to the Consolidated Financial Statements—Income Taxes". 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 retroactively adjusted. Excess tax benefits (deficits) in 2016 are classified as an operating activity in the statements of cash flows.
Prior to the adoption of ASU 2016-09, the tax effect of deductions in excess of compensation cost (“windfalls”) related to the exercise of nonqualified stock options and vesting of other share-based compensation awards were recorded in equity and tax deficiencies (“shortfalls”) were recorded in equity to the extent of previously recognized windfalls.
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 uses the US dollar as its functional currency, and monetary assets and liabilities denominated in Venezuelan bolívar fuerte (“BsF”) generate income or expense for changes in value associated with foreign currency exchange rate fluctuations against the US dollar. From January 2010 through January 2013, Mattel’s Venezuelan subsidiary used the Sistema de Transacciones con Títulos en Moneda Extranjera (“SITME”) rate, which was quoted at
5.30
BsF per US dollar as of December 31, 2012, to remeasure monetary assets and liabilities denominated in BsF. During February 2013, the Central Bank of Venezuela revised its official exchange rate to
6.30
BsF per US dollar and eliminated the SITME rate.
During March 2013, the Venezuelan government introduced a complementary currency exchange system, the Sistema Complementario de Administración de Divisas 1 (“SICAD 1”). SICAD 1 was intended to function as an auction system, allowing entities in specific sectors to bid for US dollars to be used for specified import transactions. During February 2014, the Venezuelan government introduced an additional currency exchange system, the Sistema Complementario de Administración de Divisas 2 (“SICAD 2”), which was expected to provide a greater supply of US dollars from sources other than the Venezuelan government and increase participation to all sectors and companies.
During February 2015, the Venezuelan government announced the launch of a new three-tiered currency exchange platform, which included a new exchange system called the Marginal Currency System (“SIMADI”). The first tier was used for food, medicine, agriculture, and other essential goods and used an official exchange rate of
6.30
BsF per US dollar. The second tier was a merger of the SICAD 1 and SICAD 2 systems, which held periodic auctions for entities in specific sectors. The third tier was the new SIMADI system, which was intended to be a market-driven exchange that allowed for legal trading of foreign currency based on supply and demand.
During March 2016, the Venezuelan government further revised its currency exchange platform to a dual system. The SICAD rate merged with the official exchange rate, becoming the new Tipo de Cambio Protegido ("DIPRO") exchange rate, which was fixed at
10.00
BsF per US dollar. The existing SIMADI rate was renamed the Tipo de Cambio Complementario ("DICOM") exchange rate. The DIPRO rate is used for essential imports, such as food and medicine, whereas the DICOM rate is used for all other transactions. During the first quarter of 2016, Mattel changed its remeasurement rate from the official exchange rate to the new DICOM exchange rate. The change in the remeasurement rate resulted in an unrealized foreign currency exchange loss of approximately
$26 million
, which was recognized in other non-operating income (expense), net in the consolidated statement of operations in the first quarter of 2016.
Mattel’s Venezuelan subsidiary represented less than
0.01%
of Mattel’s consolidated net sales for the year ended December 31,
2016
and had approximately
$1 million
of net monetary assets denominated in BsF as of December 31,
2016
. Venezuela currency matters, along with economic and political instability, continue to impact the operating results of Mattel’s Venezuelan subsidiary. If the Venezuelan bolívar fuerte significantly devalues in the future, or if the economic or political conditions significantly worsen, Mattel may consider ceasing operations of its Venezuelan subsidiary, which could result in a pre-tax charge to its consolidated statement of operations of up to
$71 million
.
United Kingdom Operations
During June 2016, the referendum by British voters to exit the European Union ("Brexit") adversely impacted global markets and resulted in a sharp decline of the British pound sterling against the US dollar. In the short-term, volatility in the British pound sterling could continue as the United Kingdom negotiates its anticipated exit from the European Union. In the longer term, any impact from Brexit on Mattel's United Kingdom operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. Mattel's United Kingdom operations represented approximately
4%
of Mattel's consolidated net sales for the year ended December 31,
2016
.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09,
Revenue from Contracts with Customers,
which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605,
Revenue Recognition,
and most industry-specific guidance. The core principle of the guidance 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. ASU 2014-09 was originally effective for interim and annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers – Deferral of the Effective Date,
which defers the effective date to annual reporting periods beginning after December 15, 2017. Early application is permitted after December 15, 2016. In March 2016, the FASB issued ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which clarifies the implementation guidance on principal versus agent considerations, and ASU 2016-10,
Identifying Performance Obligations and Licensing
, which clarifies the identification of performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers - Narrow-Scope Improvements and Practical Expedients
, which clarifies guidance on assessing collectibility, presenting sales taxes and other similar taxes collected from customers, measuring noncash consideration, and certain transition matters. Mattel is currently evaluating the impact of the adoption of ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, and ASU 2016-12 on its operating results and financial position.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory,
which requires an entity that uses first-in, first-out or average cost to measure its inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 will be effective for interim and annual reporting periods beginning after December 15, 2016. Early application is permitted. Mattel does not expect the adoption of ASU 2015-11 to have a material effect on its operating results or financial position.
In February 2016, the FASB issued ASU 2016-02,
Leases
, 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. ASU 2016-02 will be effective for interim and annual reporting periods beginning after December 15, 2018. Early application is permitted. Mattel is currently evaluating the impact of the adoption of ASU 2016-02 on its operating results and financial position.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
, which adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 will be effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted. Mattel is currently evaluating the impact of the adoption of ASU 2016-15 on its operating results and financial statements.
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. ASU 2016-16 will be effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted. Mattel is currently evaluating the impact of the adoption of ASU 2016-16 on its operating results and financial position.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations: Clarifying the Definition of a Business,
which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses and refines the definition of the term output. ASU 2017-01 will be effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted. Mattel is currently evaluating the impact of the adoption of ASU 2017-01 on its operating results and financial position.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment
, which removes Step 2 from the goodwill impairment test. ASU 2017-04 will be effective for interim and annual reporting periods beginning after December 15, 2019. Early application is permitted after January 1, 2017. Mattel is currently evaluating the impact of the adoption of ASU 2017-04 on its operating results and financial position.
Note 2—Goodwill and Other Intangibles
Goodwill is allocated to various reporting units, which are at the operating segment level, for purposes 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
2016
and
2015
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, 2014
|
$
|
720,939
|
|
|
$
|
458,766
|
|
|
$
|
213,220
|
|
|
$
|
1,392,925
|
|
Currency exchange rate impact
|
(1,940
|
)
|
|
(5,887
|
)
|
|
(578
|
)
|
|
(8,405
|
)
|
Balance at December 31, 2015
|
718,999
|
|
|
452,879
|
|
|
212,642
|
|
|
1,384,520
|
|
Acquisition
|
15,078
|
|
|
8,572
|
|
|
—
|
|
|
23,650
|
|
Currency exchange rate impact
|
(3,938
|
)
|
|
(16,443
|
)
|
|
(161
|
)
|
|
(20,542
|
)
|
Balance at December 31, 2016
|
$
|
730,139
|
|
|
$
|
445,008
|
|
|
$
|
212,481
|
|
|
$
|
1,387,628
|
|
In the third quarter of
2016
, Mattel performed its annual impairment tests and determined that goodwill was not impaired since each reporting unit's fair value exceeded its carrying value. Mattel has not recorded any goodwill impairment charges since it initially adopted the provisions of ASC 350-20,
Goodwill.
Acquisitions of Sproutling, Inc. and Fuhu, Inc.
In January 2016, Mattel completed its acquisition of Sproutling, Inc. ("Sproutling"), a maker of smart technology products for parents and families, for total consideration of
$9.9 million
and additional contingent consideration that may become payable under the terms of the agreement based on Sproutling's operating results over the next
three
years. Also in January 2016, Mattel acquired substantially all of the assets of Fuhu, Inc. ("Fuhu"), a developer of high technology products for children and families and best known for its nabi® brand of products, for total consideration of
$23.3 million
. These acquisitions are expected to strengthen Mattel's digital and smart technology capabilities and create opportunities to bring new technology-enabled products to market.
Mattel finalized the valuation of the assets acquired and liabilities assumed in the fourth quarter of 2016, which resulted in adjustments to the purchase price allocation during the measurement period. During 2016, Mattel recognized approximately
$2 million
of integration and acquisition costs. Integration and acquisition costs are recorded within other selling and administrative expenses in the consolidated statements of operations. The pro forma and actual results of operations for these acquisitions have not been presented because they are not material, individually or in the aggregate, to Mattel.
Acquisition of MEGA Brands Inc.
On April 30, 2014, Mattel acquired MEGA Brands Inc., a corporation incorporated under the laws of Canada (“MEGA Brands”), pursuant to the Arrangement Agreement dated as of February 27, 2014, between MEGA Brands, Mattel Overseas Operations Ltd., a corporation incorporated under the laws of Bermuda, Mattel-MEGA Holdings Inc., a corporation incorporated under the laws of Canada (the “Purchasing Subsidiary”), and, with respect to certain provisions thereof, Mattel (the “Arrangement Agreement”). Pursuant to the terms set forth in the Arrangement Agreement, Mattel indirectly acquired, through the Purchasing Subsidiary,
100%
of the issued and outstanding common shares and warrants of MEGA Brands for total cash consideration of
$454.9 million
, including payment for cash acquired of
$31.6 million
. The acquisition of MEGA Brands builds upon Mattel’s portfolio of brands by expanding into the construction building sets and arts and crafts categories.
The total purchase consideration was allocated to the assets acquired and liabilities assumed based on their estimated fair values. As a result of the acquisition, Mattel recognized
$95.0 million
of identifiable intangible assets (primarily related to trade names and existing product lines),
$40.6 million
of net assets acquired (which included
$31.6 million
of cash,
$36.6 million
of accounts receivable,
$83.0 million
of inventory,
$32.5 million
of property, plant, and equipment,
$66.6 million
of accounts payable and accrued liabilities,
$44.6 million
of long-term debt, and
$31.9 million
of other net liabilities), and
$319.3 million
of goodwill, which is not deductible for tax purposes. The fair values of the identifiable intangible assets related to trade names were based on the relief from royalty method, using Level 3 inputs within the fair value hierarchy, which included forecasted future cash flows, long-term revenue growth rates, royalty rates, and discount rates. The fair values of the identifiable intangible assets related to existing product lines were estimated based on the multi-period excess earnings method, using Level 3 inputs within the fair value hierarchy, which included forecasted future cash flows, long-term revenue growth rates, and discount rates. Goodwill relates to a number of factors built into the purchase price, including the future earnings and cash flow potential of the business, as well as the complementary strategic fit and the resulting synergies it brings to Mattel’s existing operations.
Mattel finalized the valuation of the assets acquired and liabilities assumed in the first quarter of 2015, which resulted in adjustments to the purchase price allocation during the measurement period. As such, Mattel has retrospectively adjusted the provisional amounts recorded in its consolidated balance sheet as of December 31, 2014 as if the valuation of the assets acquired and liabilities assumed was finalized on the acquisition date. For the consolidated balance sheet as of December 31, 2014, the retrospective adjustments resulted in an increase to net assets acquired of approximately
$1 million
and a decrease to goodwill of approximately
$1 million
.
There were
no
integration or transaction costs during 2016. During
2015
, Mattel recognized approximately
$11 million
of integration costs. There were
no
transaction costs during
2015
. During
2014
, Mattel recognized approximately
$21 million
and
$7 million
of integration costs and transaction costs, respectively. Integration and transaction costs are recorded within other selling and administrative expenses in the consolidated statements of operations. The pro forma and actual results of operations for this acquisition have not been presented because they are not material.
Other Intangibles
Identifiable intangibles include the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Nonamortizable identifiable intangibles
|
$
|
458,589
|
|
|
$
|
488,144
|
|
Identifiable intangibles (net of amortization of $153.7 and $131.5 million at December 31, 2016 and 2015, respectively)
|
201,859
|
|
|
212,161
|
|
|
$
|
660,448
|
|
|
$
|
700,305
|
|
In connection with the acquisition of Sproutling and Fuhu during 2016, Mattel recognized
$11.0 million
of amortizable identifiable intangible assets, primarily related to patents.
Mattel tests nonamortizable intangible assets, including trademarks and trade names, for impairment annually in the third quarter and whenever events or changes in circumstances indicate that the carrying values may exceed the fair values. During 2016, Mattel performed the annual impairment tests and determined that its nonamortizable intangible assets were not impaired.
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 2016.
Note 3—Income Taxes
Consolidated pre-tax income (loss) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
US operations
|
$
|
9,179
|
|
|
$
|
(3,435
|
)
|
|
$
|
39,149
|
|
Foreign operations
|
400,563
|
|
|
467,350
|
|
|
547,761
|
|
|
$
|
409,742
|
|
|
$
|
463,915
|
|
|
$
|
586,910
|
|
The provision (benefit) for current and deferred income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Current
|
|
|
|
|
|
Federal
|
$
|
(3,041
|
)
|
|
$
|
(1,405
|
)
|
|
$
|
(25,075
|
)
|
State
|
2,455
|
|
|
1,946
|
|
|
(2,029
|
)
|
Foreign
|
91,070
|
|
|
89,825
|
|
|
106,998
|
|
|
90,484
|
|
|
90,366
|
|
|
79,894
|
|
Deferred
|
|
|
|
|
|
Federal
|
(4,624
|
)
|
|
(3,802
|
)
|
|
21,987
|
|
State
|
2,623
|
|
|
(2,200
|
)
|
|
8,233
|
|
Foreign
|
3,237
|
|
|
10,135
|
|
|
(22,078
|
)
|
|
1,236
|
|
|
4,133
|
|
|
8,142
|
|
Provision for income taxes
|
$
|
91,720
|
|
|
$
|
94,499
|
|
|
$
|
88,036
|
|
Deferred income taxes are provided principally for tax credit carryforwards, research and development expenses, net operating loss carryforwards, 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,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Allowances and reserves
|
$
|
204,661
|
|
|
$
|
211,538
|
|
Research and development expenses
|
193,908
|
|
|
191,057
|
|
Loss carryforwards
|
165,522
|
|
|
150,270
|
|
Deferred compensation
|
78,245
|
|
|
98,832
|
|
Tax credit carryforwards
|
59,426
|
|
|
50,309
|
|
Postretirement benefits
|
47,732
|
|
|
48,648
|
|
Intangible assets
|
9,160
|
|
|
14,035
|
|
Other
|
62,057
|
|
|
71,453
|
|
Gross deferred income tax assets
|
820,711
|
|
|
836,142
|
|
Intangible assets
|
(295,968
|
)
|
|
(305,818
|
)
|
Other
|
—
|
|
|
(2,905
|
)
|
Gross deferred income tax liabilities
|
(295,968
|
)
|
|
(308,723
|
)
|
Deferred income tax asset valuation allowances
|
(74,125
|
)
|
|
(77,334
|
)
|
Net deferred income tax assets
|
$
|
450,618
|
|
|
$
|
450,085
|
|
Net deferred income tax assets are reported in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Other noncurrent assets
|
$
|
508,363
|
|
|
$
|
510,928
|
|
Other noncurrent liabilities
|
(57,745
|
)
|
|
(60,843
|
)
|
|
$
|
450,618
|
|
|
$
|
450,085
|
|
In the first quarter of 2016, Mattel retrospectively adopted ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which generally simplifies the classification of all deferred tax assets and liabilities, along with any related valuation allowance, into noncurrent amounts on the balance sheet. As of December 31, 2015, prepaid expenses and other current assets decreased by
$195.8 million
, other noncurrent assets increased by
$193.6 million
, and other noncurrent liabilities decreased by
$2.2 million
from the previously reported amounts.
As of
December 31, 2016
, Mattel had federal and foreign loss carryforwards totaling
$639.1 million
and tax credit carryforwards of
$60.6 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)
|
2017 – 2021
|
$
|
52,614
|
|
|
$
|
1,578
|
|
Thereafter
|
321,859
|
|
|
54,376
|
|
No expiration date
|
264,674
|
|
|
4,637
|
|
Total
|
$
|
639,147
|
|
|
$
|
60,591
|
|
Management considered all available evidence under existing tax law and anticipated expiration of tax statutes and determined that a valuation allowance of
$65.2 million
was required as of
December 31, 2016
for those loss and tax credit carryforwards that are not expected to provide future tax benefits. In addition, management determined that a valuation allowance of
$8.9 million
was required as of
December 31, 2016
for those deferred tax assets for which there is not sufficient evidence as to their ultimate utilization, primarily related to certain foreign affiliates. Changes in the valuation allowance for
2016
primarily relate 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. Management believes it is more-likely-than-not (a greater than
50 percent
likelihood) that Mattel will generate sufficient taxable income in the appropriate future periods to realize the benefit of the remaining net deferred income tax assets of
$450.6 million
. Changes in enacted tax laws, audits in various jurisdictions around the world, settlements, or acquisitions could negatively impact Mattel’s ability to fully realize all of the benefits of its remaining net deferred tax assets.
Differences between the provision for income taxes at the US federal statutory income tax rate and the provision in the consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Provision at US federal statutory rate
|
$
|
143,410
|
|
|
$
|
162,370
|
|
|
$
|
205,419
|
|
(Decrease) increase resulting from:
|
|
|
|
|
|
Foreign earnings taxed at different rates, including withholding taxes
|
(51,711
|
)
|
|
(56,877
|
)
|
|
(107,409
|
)
|
Foreign losses without income tax benefit
|
8,526
|
|
|
5,843
|
|
|
20,140
|
|
State and local taxes, net of US federal benefit
|
3,385
|
|
|
482
|
|
|
3,760
|
|
Adjustments to previously accrued taxes
|
(12,537
|
)
|
|
(19,134
|
)
|
|
(55,026
|
)
|
Adoption of ASU 2016-09
|
(4,308
|
)
|
|
—
|
|
|
—
|
|
Tax restructuring
|
—
|
|
|
—
|
|
|
12,400
|
|
Other
|
4,955
|
|
|
1,815
|
|
|
8,752
|
|
Provision for income taxes
|
$
|
91,720
|
|
|
$
|
94,499
|
|
|
$
|
88,036
|
|
In the fourth quarter of 2016, Mattel early adopted ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which requires all excess tax benefits and tax deficiencies to be recognized in the income statement when the awards vest or are settled. Upon adoption of ASU 2016-09, Mattel recognized
$4.3 million
in discrete tax benefits related to share-based payment accounting.
Prior to the adoption of ASU 2016-09, the tax effect of deductions in excess of compensation cost (“windfalls”) related to the exercise of nonqualified stock options and vesting of other share-based compensation awards were recorded in equity and tax deficiencies (“shortfalls”) were recorded in equity to the extent of previously recognized windfalls. The exercise of nonqualified stock options and vesting of other share-based compensation awards resulted in a (decrease)/increase to additional paid-in capital totaling
$(2.8) million
and
$21.2 million
in
2015
and
2014
, respectively.
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 US 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,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Unrecognized tax benefits at January 1
|
$
|
118,099
|
|
|
$
|
100,357
|
|
|
$
|
111,370
|
|
Increases for positions taken in current year
|
2,925
|
|
|
5,724
|
|
|
9,886
|
|
Increases for positions taken in a prior year
|
921
|
|
|
22,584
|
|
|
53,221
|
|
Decreases for positions taken in a prior year
|
(1,706
|
)
|
|
(4,242
|
)
|
|
(51,421
|
)
|
Decreases for settlements with taxing authorities
|
(1,097
|
)
|
|
(3,577
|
)
|
|
(9,493
|
)
|
Decreases for lapses in the applicable statute of limitations
|
(9,795
|
)
|
|
(2,747
|
)
|
|
(13,206
|
)
|
Unrecognized tax benefits at December 31
|
$
|
109,347
|
|
|
$
|
118,099
|
|
|
$
|
100,357
|
|
Of the
$109.3 million
of unrecognized tax benefits as of December 31, 2016,
$105.8 million
would impact the effective tax rate if recognized.
Mattel recognized a decrease of interest and penalties of approximately
$2 million
during 2016, and increase of interest and penalties of approximately
$0
and
$2 million
during 2015 and 2014, respectively, related to unrecognized tax benefits, which are reflected in provision for income taxes in the consolidated statements of operations. As of
December 31, 2016
, Mattel accrued
$17.1 million
in interest and penalties related to unrecognized tax benefits. Of this balance,
$16.2 million
would impact the effective tax rate if recognized. As of December 31, 2015, Mattel accrued
$18.3 million
in interest and penalties related to unrecognized tax benefits.
In the normal course of business, Mattel is regularly audited by federal, state, local and foreign tax authorities. In May 2014, the IRS completed its audit of Mattel’s 2010 and 2011 federal income tax returns. Mattel remains subject to IRS examination for the 2013 through 2016 tax years. Mattel files multiple state and local income tax returns and remains subject to examination in various of these jurisdictions, including California for the 2008 through 2016 tax years, New York for the 2010 through 2016 tax years, and Wisconsin for the 2008 through 2016 tax years. Mattel files multiple foreign income tax returns and remains subject to examination in major foreign jurisdictions, including Hong Kong for the 2010 through 2016 tax years, Brazil, Mexico and Netherlands for the 2011 through 2016 tax years and Russia for the 2014 through 2016 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 approximately
$11 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.
The income tax provision included net tax benefits of
$16.8 million
,
$19.1 million
, and
$42.6 million
in
2016
,
2015
, and
2014
, respectively. The 2016 net tax benefits 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, and the adoption of ASU 2016-09. The
2015
net tax benefits 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. The 2014 net tax benefits primarily related to the 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, partially offset by a tax charge related to a 2014 tax restructuring for the HIT Entertainment
®
and MEGA Brands operations.
The cumulative amount of undistributed earnings of foreign subsidiaries that Mattel intends to indefinitely reinvest and upon which no deferred US income taxes have been provided is approximately
$7.0 billion
as of
December 31, 2016
. Management periodically reviews the undistributed earnings of its foreign subsidiaries and reassesses the intent to indefinitely reinvest such earnings. It is not practicable for Mattel to determine the deferred tax liability associated with these undistributed earnings due to the availability of foreign tax credits, the complexity of Mattel's international holding company structure, the rules governing the utilization of foreign tax credits, and the interplay between utilization of such foreign tax credits and Mattel’s other significant tax attributes.
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 US where its employees work.
A summary of retirement plan expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Defined contribution retirement plans
|
$
|
37,661
|
|
|
$
|
40,673
|
|
|
$
|
43,819
|
|
Defined benefit pension plans
|
13,999
|
|
|
14,779
|
|
|
18,124
|
|
Deferred compensation and excess benefit plans
|
5,093
|
|
|
225
|
|
|
4,840
|
|
Postretirement benefit plans
|
1,343
|
|
|
1,396
|
|
|
1,461
|
|
|
$
|
58,096
|
|
|
$
|
57,073
|
|
|
$
|
68,244
|
|
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 and other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
Postretirement Benefit Plans
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
5,557
|
|
|
$
|
6,105
|
|
|
$
|
7,515
|
|
|
$
|
52
|
|
|
$
|
54
|
|
|
$
|
67
|
|
Interest cost
|
24,526
|
|
|
26,007
|
|
|
27,708
|
|
|
1,143
|
|
|
1,194
|
|
|
1,377
|
|
Expected return on plan assets
|
(25,726
|
)
|
|
(29,850
|
)
|
|
(31,833
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
461
|
|
|
(465
|
)
|
|
(1,037
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Recognized actuarial loss
|
6,994
|
|
|
15,168
|
|
|
15,771
|
|
|
148
|
|
|
148
|
|
|
17
|
|
Settlement loss
|
1,772
|
|
|
6,453
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailment loss (gain)
|
415
|
|
|
(8,639
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
13,999
|
|
|
$
|
14,779
|
|
|
$
|
18,124
|
|
|
$
|
1,343
|
|
|
$
|
1,396
|
|
|
$
|
1,461
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
$
|
(1,531
|
)
|
|
$
|
(8,813
|
)
|
|
$
|
48,502
|
|
|
$
|
(1,833
|
)
|
|
$
|
(3,130
|
)
|
|
$
|
(2,205
|
)
|
Prior service cost
|
505
|
|
|
8,691
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service (cost) credit
|
(461
|
)
|
|
465
|
|
|
1,037
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total recognized in other comprehensive income (a)
|
$
|
(1,487
|
)
|
|
$
|
343
|
|
|
$
|
49,559
|
|
|
$
|
(1,833
|
)
|
|
$
|
(3,130
|
)
|
|
$
|
(2,205
|
)
|
Total recognized in net periodic benefit cost and other comprehensive income
|
$
|
12,512
|
|
|
$
|
15,122
|
|
|
$
|
67,683
|
|
|
$
|
(490
|
)
|
|
$
|
(1,734
|
)
|
|
$
|
(744
|
)
|
|
|
(a)
|
Amounts exclude related tax expense (benefit) of
$1.2 million
,
$1.1 million
, and
$(17.8) million
, during
2016
,
2015
, and
2014
, respectively, which are also included in other comprehensive income.
|
Net periodic benefit cost 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,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
Defined benefit pension plans:
|
|
|
|
|
|
Discount rate
|
4.2
|
%
|
|
3.8
|
%
|
|
4.7
|
%
|
Weighted average rate of future compensation increases
|
N/A
|
|
|
3.8
|
%
|
|
3.8
|
%
|
Long-term rate of return on plan assets
|
6.5
|
%
|
|
(a)
|
|
|
8.0
|
%
|
Postretirement benefit plans:
|
|
|
|
|
|
Discount rate
|
4.2
|
%
|
|
3.8
|
%
|
|
4.7
|
%
|
Annual increase in Medicare Part B premium
|
6.0
|
%
|
|
6.0
|
%
|
|
6.0
|
%
|
Health care cost trend rate:
|
|
|
|
|
|
Pre-65
|
7.0
|
%
|
|
7.5
|
%
|
|
8.5
|
%
|
Post-65
|
8.3
|
%
|
|
8.8
|
%
|
|
7.5
|
%
|
Ultimate cost trend rate:
|
|
|
|
|
|
Pre-65
|
4.5
|
%
|
|
4.5
|
%
|
|
6.1
|
%
|
Post-65
|
4.5
|
%
|
|
4.5
|
%
|
|
5.4
|
%
|
Year that the rate reaches the ultimate cost trend rate:
|
|
|
|
|
|
Pre-65
|
2023
|
|
|
2023
|
|
|
2030
|
|
Post-65
|
2024
|
|
|
2024
|
|
|
2030
|
|
|
|
(a)
|
A long-term rate of return on plan assets of
7.5%
was used for the first half of 2015. A long-term rate of return on plan assets of
6.8%
was used for the second half of 2015, resulting from a change in the plans' target asset allocation.
|
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-US plans are based. The rates shown in the preceding table are indicative of the weighted average rates of all Mattel’s defined benefit pension plans given the relative insignificance of the foreign plans to the consolidated total.
The estimated net actuarial loss and prior service cost for the domestic defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in
2017
is
$6.5 million
. The estimated net actuarial loss for the domestic postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in
2017
is
$0.2 million
.
Mattel used a measurement date of
December 31, 2016
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,
2016
|
|
December 31,
2015
|
|
December 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
$
|
611,490
|
|
|
$
|
677,641
|
|
|
$
|
30,416
|
|
|
$
|
34,402
|
|
Service cost
|
5,557
|
|
|
6,105
|
|
|
52
|
|
|
54
|
|
Interest cost
|
24,526
|
|
|
26,007
|
|
|
1,143
|
|
|
1,194
|
|
Impact of currency exchange rate changes
|
(14,535
|
)
|
|
(11,016
|
)
|
|
—
|
|
|
—
|
|
Actuarial loss (gain)
|
25,164
|
|
|
(14,604
|
)
|
|
(1,686
|
)
|
|
(2,981
|
)
|
Benefits paid
|
(46,425
|
)
|
|
(67,994
|
)
|
|
(2,311
|
)
|
|
(2,253
|
)
|
Plan amendments
|
74
|
|
|
(4,649
|
)
|
|
—
|
|
|
—
|
|
Benefit obligation, end of year
|
$
|
605,851
|
|
|
$
|
611,490
|
|
|
$
|
27,614
|
|
|
$
|
30,416
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
Plan assets at fair value, beginning of year
|
$
|
435,274
|
|
|
$
|
475,940
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
43,292
|
|
|
(690
|
)
|
|
—
|
|
|
—
|
|
Employer contributions
|
17,617
|
|
|
33,353
|
|
|
2,311
|
|
|
2,253
|
|
Impact of currency exchange rate changes
|
(15,978
|
)
|
|
(5,335
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(46,425
|
)
|
|
(67,994
|
)
|
|
(2,311
|
)
|
|
(2,253
|
)
|
Plan assets at fair value, end of year
|
$
|
433,780
|
|
|
$
|
435,274
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net Amount Recognized in Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
Funded status, end of year
|
$
|
(172,071
|
)
|
|
$
|
(176,216
|
)
|
|
$
|
(27,614
|
)
|
|
$
|
(30,416
|
)
|
Current accrued benefit liability
|
(4,519
|
)
|
|
(7,416
|
)
|
|
(2,700
|
)
|
|
(3,300
|
)
|
Noncurrent accrued benefit liability
|
(167,552
|
)
|
|
(168,800
|
)
|
|
(24,914
|
)
|
|
(27,116
|
)
|
Total accrued benefit liability
|
$
|
(172,071
|
)
|
|
$
|
(176,216
|
)
|
|
$
|
(27,614
|
)
|
|
$
|
(30,416
|
)
|
Amounts Recognized in Accumulated Other Comprehensive Loss (a):
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
243,249
|
|
|
$
|
244,780
|
|
|
$
|
(49
|
)
|
|
$
|
1,784
|
|
Prior service cost
|
164
|
|
|
120
|
|
|
—
|
|
|
—
|
|
|
$
|
243,413
|
|
|
$
|
244,900
|
|
|
$
|
(49
|
)
|
|
$
|
1,784
|
|
|
|
(a)
|
Amounts exclude related tax benefits of
$85.7 million
and
$86.8 million
for
December 31, 2016
and
2015
, 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
December 31, 2016
and
2015
totaled
$588.4 million
and
$589.2 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,
2016
|
|
December 31,
2015
|
Defined benefit pension plans:
|
|
|
|
Discount rate
|
3.9
|
%
|
|
4.2
|
%
|
Weighted average rate of future compensation increases
|
N/A
|
|
|
3.8
|
%
|
Postretirement benefit plans:
|
|
|
|
Discount rate
|
3.9
|
%
|
|
4.2
|
%
|
Annual increase in Medicare Part B premium
|
6.0
|
%
|
|
6.0
|
%
|
Health care cost trend rate:
|
|
|
|
Pre-65
|
7.0
|
%
|
|
7.0
|
%
|
Post-65
|
7.8
|
%
|
|
8.3
|
%
|
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
|
2024
|
|
|
2023
|
|
Post-65
|
2024
|
|
|
2024
|
|
A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year would impact the postretirement benefit obligation as of
December 31, 2016
by
$2.1 million
and
$(1.9) million
, respectively, and the service and interest cost recognized for
2016
by
$0.1 million
and
$(0.1) million
, respectively.
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)
|
2017
|
$
|
54,051
|
|
|
$
|
2,700
|
|
2018
|
37,833
|
|
|
2,600
|
|
2019
|
37,997
|
|
|
2,600
|
|
2020
|
37,901
|
|
|
2,600
|
|
2021
|
37,466
|
|
|
2,600
|
|
2022 – 2026
|
185,012
|
|
|
11,300
|
|
Mattel expects to make cash contributions totaling approximately
$10 million
to its defined benefit pension and postretirement benefit plans in
2017
, which includes approximately
$9 million
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
79%
of Mattel’s total plan assets, are
42%
in US equities,
28%
in non-US equities,
20%
in fixed income securities, and
10%
in real estate securities. The US equities are benchmarked against the S&P 500, and the non-US 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 US 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 10 to the Consolidated Financial Statements—Fair Value Measurements,” as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
US government and US government agency securities
|
$
|
—
|
|
|
$
|
1,568
|
|
|
$
|
—
|
|
|
$
|
1,568
|
|
US corporate debt instruments
|
—
|
|
|
33,787
|
|
|
—
|
|
|
33,787
|
|
International corporate debt instruments
|
—
|
|
|
8,689
|
|
|
—
|
|
|
8,689
|
|
Mutual funds
|
582
|
|
|
—
|
|
|
—
|
|
|
582
|
|
Money market funds
|
2,531
|
|
|
—
|
|
|
|
|
2,531
|
|
Other
|
—
|
|
|
6,640
|
|
|
—
|
|
|
6,640
|
|
Collective trust funds:
|
|
|
|
|
|
|
|
US equity securities (a)
|
|
|
|
|
|
|
96,487
|
|
International equity securities (a)
|
|
|
|
|
|
|
239,177
|
|
International fixed income (a)
|
|
|
|
|
|
|
44,319
|
|
Total
|
$
|
3,113
|
|
|
$
|
50,684
|
|
|
$
|
—
|
|
|
$
|
433,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
US government and US government agency securities
|
$
|
—
|
|
|
$
|
1,540
|
|
|
$
|
—
|
|
|
$
|
1,540
|
|
US corporate debt instruments
|
—
|
|
|
31,254
|
|
|
—
|
|
|
31,254
|
|
International corporate debt instruments
|
—
|
|
|
5,612
|
|
|
—
|
|
|
5,612
|
|
Mutual funds
|
567
|
|
|
—
|
|
|
—
|
|
|
567
|
|
Other
|
—
|
|
|
10,023
|
|
|
—
|
|
|
10,023
|
|
Collective trust funds:
|
|
|
|
|
|
|
|
US equity securities (a)
|
|
|
|
|
|
|
86,466
|
|
International equity securities (a)
|
|
|
|
|
|
|
255,694
|
|
International fixed income (a)
|
|
|
|
|
|
|
44,118
|
|
Total
|
$
|
567
|
|
|
$
|
48,429
|
|
|
$
|
—
|
|
|
$
|
435,274
|
|
(a) These investments consist of privately placed funds that are valued based on net asset value per share. With the adoption of ASU 2015-07, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. 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, US government securities, US 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.
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
6.5%
as of
December 31, 2016
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-US 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, 2016
and
2015
was
$70.0 million
and
$71.7 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
$70.9 million
and
$67.3 million
as of
December 31, 2016
and
2015
, 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.
Incentive Compensation Plans
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
2016
,
2015
, and
2014
,
$16.5 million
,
$50.2 million
, and
$25.2 million
, respectively, was charged to expense for awards under these plans.
Mattel had two long-term incentive program (“LTIP”) performance cycles in place for the time period between
2014
and
2016
: (i) a January 1, 2014—December 31, 2016 performance cycle, which was established by the Compensation Committee of the Board of Directors in March 2014, and (ii) a January 1, 2016—December 31, 2018 performance cycle, which was established by the Compensation Committee of the Board of Directors in March 2016.
For the January 1, 2014—December 31, 2016 LTIP performance cycle, Mattel granted performance-based restricted stock units ("Performance RSUs") under the Mattel, Inc. 2010 Equity and Long-Term Compensation Plan to officers and certain employees providing services to Mattel. Performance RSUs granted under this program could be 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) annual operating result targets for each year in the performance cycle using a net operating profit after taxes less capital charge measure and a net sales performance measure (“the 2014-2016 performance-related components”), and (ii) Mattel’s total stock return ("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 2014-2016 market-related component”), adjusted for dividends declared during the
three
-year performance cycle. The Performance RSUs also had dividend equivalent rights that could be converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs were earned and paid in shares of Mattel common stock. For the January 1, 2014—December 31, 2016 LTIP performance cycle,
no
shares were earned relating to the 2014-2016 performance-related components, market-related component, or dividend equivalent rights.
For the January 1, 2014—December 31, 2016 LTIP performance cycle, the weighted average grant date fair values of the performance-related and market-related components of the Performance RSUs were
$32.60
and
($3.57)
per share, respectively, for 2016,
$23.14
and
$(3.57)
per share, respectively, for 2015, and
$39.03
and
($3.57)
per share, respectively, for 2014. During 2016, 2015, and 2014,
no
expense was recognized related to the 2014-2016 performance cycle, as no shares were earned.
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 to officers and certain employees providing services to Mattel. Performance RSUs granted under this program are also 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 2016-2018 performance-related component, the range of possible outcomes is that between
zero
and
0.5 million
shares could be earned. For the 2016-2018 market-related component, the possible outcomes range from an upward adjustment of
0.2 million
shares to a downward adjustment of
0.2 million
shares to the result of the performance-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
2016
. During
2016
, Mattel recognized share-based compensation expense of
$2.8 million
relating to the 2016-2018 performance-related component and
$0.4 million
relating to the 2016-2018 market-related component.
The fair values of the performance-related components were based on the closing stock prices of Mattel’s common stock on each of the grant dates. The fair values of the market-related components were estimated at the grant dates using a Monte Carlo valuation methodology.
Note 5—Seasonal Financing and Debt
Seasonal Financing
Mattel maintains and periodically amends or replaces its domestic unsecured committed revolving credit facility ("Credit Facility") with a commercial bank group. The facility is used as a back-up to Mattel’s commercial paper program, which is used as the primary source of financing for the seasonal working capital requirements of its domestic subsidiaries. The agreement governing the Credit Facility was amended and restated on June 8, 2015 to, among other things, (i) extend the maturity date of the Credit Facility to
June 9, 2020
, (ii) amend the definition of consolidated earnings before interest, taxes, depreciation, and amortization (“Consolidated EBITDA”) used in calculating Mattel’s financial ratio covenants, and (iii) increase the maximum allowed consolidated debt-to-Consolidated EBITDA ratio to
3.50
to 1. The aggregate commitments under the Credit Facility remain at
$1.60 billion
, with an “accordion feature,” which allows Mattel to increase the aggregate availability under the Credit Facility to
$1.85 billion
under certain circumstances. In addition, applicable interest rate margins remain within a range of
0.00%
to
0.75%
above the applicable base rate for base rate loans and
0.88%
to
1.75%
above the applicable LIBOR for Eurodollar rate loans, and the commitment fees range from
0.08%
to
0.25%
of the unused commitments under the Credit Facility, in each case depending on Mattel’s senior unsecured long-term debt rating.
The proportion of unamortized debt issuance costs from the prior facility renewal related to creditors involved in both the prior facility and amended facility and borrowing costs incurred as a result of the amendment were deferred, and such costs will be amortized over the term of the amended facility.
Mattel is required to meet financial ratio covenants at the end of each quarter and fiscal year, using the formulae specified in the credit agreement to calculate the ratios. Mattel was in compliance with such covenants at the end of each fiscal quarter and fiscal year in
2016
. As of
December 31, 2016
, Mattel’s consolidated debt-to-EBITDA ratio, as calculated per the terms of the credit agreement, was
2.86
to 1 (compared to a maximum allowed of
3.50
to 1), and Mattel’s interest coverage ratio was
8.62
to 1 (compared to a minimum required of
3.50
to 1).
The credit agreement is a material agreement, and failure to comply with the financial ratio covenants may result in an event of default under the terms of the Credit Facility. If Mattel were to default under the terms of the Credit Facility, its ability to meet its seasonal financing requirements could be adversely affected.
Mattel believes its cash on hand, amounts available under its Credit Facility, and its foreign credit lines will be adequate to meet its seasonal financing requirements in
2017
.
To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines with a number of banks. As of
December 31, 2016
, foreign credit lines totaled approximately
$366 million
. Mattel expects to extend the majority of these credit lines throughout
2017
.
Additionally, sales of foreign receivables occur periodically to finance seasonal working capital requirements. The outstanding amounts of accounts receivable that have been sold under international factoring arrangements were
$18.1 million
and
$19.5 million
at
December 31, 2016
and
2015
, respectively. These amounts have been excluded from Mattel’s consolidated balance sheets.
In January 2017, a major credit rating agency placed Mattel’s Senior Unsecured Debt rating of Baa1 on negative watch. Another major credit rating agency changed Mattel's outlook from stable to negative. In January 2016, a major credit rating agency changed Mattel's long-term credit rating from A- to BBB+, maintained its short-term credit rating of F2, and changed its outlook from negative to stable. In January 2015, a major credit rating agency changed Mattel’s long-term credit rating from BBB+ to BBB and maintained its short-term credit rating of A-2 and outlook at stable. Another major credit rating agency maintained Mattel’s long-term credit rating of Baa1 and short-term credit rating of P-2 and changed its outlook from stable to negative. A third major credit rating agency maintained Mattel’s long-term credit rating of A- and short-term credit rating of F2 and changed its outlook from stable to negative. A reduction in Mattel’s credit ratings could increase the cost of obtaining financing.
Short-Term Borrowings
As of
December 31, 2016
and 2015, Mattel had foreign short-term bank loans outstanding of
$47.2 million
and
$16.9 million
, respectively. As of
December 31, 2016
and
2015
, Mattel had
no
borrowings outstanding under the Credit Facility. As of December 31, 2016 and 2015, Mattel had
$145.0 million
and
$0
, respectively, of commercial paper outstanding.
During
2016
and
2015
, Mattel had average borrowings of
$2.0 million
and
$2.9 million
, respectively, under its foreign short-term bank loans, and
$728.4 million
and
$374.3 million
, respectively, under the Credit Facility and other short-term borrowings, to help finance its seasonal working capital requirements. The weighted average interest rate on foreign short-term bank loans during
2016
and
2015
was
12.5%
and
13.7%
, respectively. The weighted average interest rate on the Credit Facility and other short-term borrowings during
2016
and
2015
was
0.6%
and
0.3%
, respectively.
Long-Term Debt
In August 2016, Mattel issued
$350.0 million
aggregate principal amount of
2.35%
senior unsecured notes due August 15, 2021 (“2016 Senior Notes”). Interest on the 2016 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2017. Mattel may redeem all or part of the 2016 Senior Notes at any time or from time to time prior to July 15, 2021 (one month prior to the maturity date of the 2016 Senior Notes) (the “Par Call Date”), at its option, at a redemption price equal to the greater of (1)
100%
of the principal amount of the 2016 Senior Notes being redeemed or (2) a “make-whole” amount based on the yield of a comparable US Treasury security plus
20 basis points
, plus, in each case, accrued and unpaid interest on the 2016 Senior Notes being redeemed to, but excluding, the redemption date. Mattel may redeem all or part of the 2016 Senior Notes at any time or from time to time on or after the Par Call Date, at its option, at a redemption price equal to
100%
of the principal amount of the 2016 Senior Notes to be redeemed, plus accrued and unpaid interest on the 2016 Senior Notes being redeemed to, but excluding, the redemption date.
In May 2014, Mattel issued
$500.0 million
aggregate principal amount of
2.35%
senior unsecured notes due
May 6, 2019
(“2014 Senior Notes”). Interest on the 2014 Senior Notes is payable semi-annually on May 6 and November 6 of each year, beginning November 6, 2014. Mattel may redeem all or part of the 2014 Senior Notes at any time or from time to time at its option, at a redemption price equal to the greater of (i)
100%
of the principal amount of the notes being redeemed plus accrued and unpaid interest to, but excluding, the redemption date, and (ii) a “make-whole” amount based on the yield of a comparable US Treasury security plus
12.5 basis points
.
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, 2016
and
2015
. Mattel’s 2011 Senior Notes bear interest at fixed rates ranging from
2.50%
to
5.45%
, with a weighted average interest rate of
5.45%
and
3.98%
as of
December 31, 2016
and
2015
, respectively. 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, 2016
and
2015
. Mattel’s 2014 Senior Notes bear interest at a fixed rate of
2.35%
as of
December 31, 2016
and 2015. Mattel’s 2016 Senior Notes bear interest at a fixed rate of
2.35%
as of
December 31, 2016
.
On November 1, 2016, Mattel repaid
$300.0 million
of its
2.50%
Senior Notes in connection with the scheduled maturity. During 2014, Mattel repaid
$44.6 million
of long-term borrowings assumed through the acquisition of MEGA Brands.
During the first quarter of 2016, Mattel retrospectively adopted ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs.
As such, prior periods were restated to present debt issuance costs as a deduction from long-term debt.
Mattel’s long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
2010 Senior Notes due October 2020 and October 2040
|
$
|
500,000
|
|
|
$
|
500,000
|
|
2011 Senior Notes due November 2016 and November 2041
|
300,000
|
|
|
600,000
|
|
2013 Senior Notes due March 2018 and March 2023
|
500,000
|
|
|
500,000
|
|
2014 Senior Notes due May 2019
|
500,000
|
|
|
500,000
|
|
2016 Senior Notes due August 2021
|
350,000
|
|
|
—
|
|
Debt issuance costs
|
(15,729
|
)
|
|
(15,279
|
)
|
|
2,134,271
|
|
|
2,084,721
|
|
Less: current portion
|
—
|
|
|
(300,000
|
)
|
Total long-term debt
|
$
|
2,134,271
|
|
|
$
|
1,784,721
|
|
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
|
|
2014
Senior
Notes
|
|
2016
Senior
Notes
|
|
Total
|
|
(In thousands)
|
2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2018
|
—
|
|
|
—
|
|
|
250,000
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
2019
|
—
|
|
|
—
|
|
|
—
|
|
|
500,000
|
|
|
—
|
|
|
500,000
|
|
2020
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
2021
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350,000
|
|
|
350,000
|
|
Thereafter
|
250,000
|
|
|
300,000
|
|
|
250,000
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
$
|
500,000
|
|
|
$
|
300,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
350,000
|
|
|
$
|
2,150,000
|
|
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
2016
and
2015
, Mattel did not repurchase any shares of its common stock. During
2014
, Mattel repurchased
4.9 million
shares of its common stock at a cost of
$177.2 million
. 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,
2016
, 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
2016
,
2015
, and
2014
, Mattel paid total dividends per share of
$1.52
, in each year, to holders of its common stock. The Board of Directors declared the dividends on a quarterly basis, and Mattel paid the dividends during the quarters in which the dividends were declared. The payment of dividends on common stock is at the discretion of the Board of Directors and is subject to customary limitations.
Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income, including current period other comprehensive income and reclassifications out of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
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
|
)
|
|
For the Year Ended December 31, 2015
|
|
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, 2014
|
$
|
30,025
|
|
|
$
|
—
|
|
|
$
|
(161,507
|
)
|
|
$
|
(490,607
|
)
|
|
$
|
(622,089
|
)
|
Other comprehensive income (loss) before reclassifications
|
37,926
|
|
|
—
|
|
|
(6,443
|
)
|
|
(213,797
|
)
|
|
(182,314
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(52,588
|
)
|
|
—
|
|
|
8,092
|
|
|
—
|
|
|
(44,496
|
)
|
Net (decrease) increase in other comprehensive income
|
(14,662
|
)
|
|
—
|
|
|
1,649
|
|
|
(213,797
|
)
|
|
(226,810
|
)
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2015
|
$
|
15,363
|
|
|
$
|
—
|
|
|
$
|
(159,858
|
)
|
|
$
|
(704,404
|
)
|
|
$
|
(848,899
|
)
|
|
For the Year Ended December 31, 2014
|
|
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, 2013
|
$
|
(10,789
|
)
|
|
$
|
—
|
|
|
$
|
(131,946
|
)
|
|
$
|
(300,941
|
)
|
|
$
|
(443,676
|
)
|
Other comprehensive income (loss) before reclassifications
|
39,931
|
|
|
—
|
|
|
(38,969
|
)
|
|
(189,666
|
)
|
|
(188,704
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
883
|
|
|
—
|
|
|
9,408
|
|
|
—
|
|
|
10,291
|
|
Net increase (decrease) in other comprehensive income
|
40,814
|
|
|
—
|
|
|
(29,561
|
)
|
|
(189,666
|
)
|
|
(178,413
|
)
|
Accumulated Other Comprehensive Income (Loss), Net of Tax, as of December 31, 2014
|
$
|
30,025
|
|
|
$
|
—
|
|
|
$
|
(161,507
|
)
|
|
$
|
(490,607
|
)
|
|
$
|
(622,089
|
)
|
The following table presents the classification and amount of the reclassifications from accumulated other comprehensive income (loss) to the consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Statements of Operations
Classification
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
|
(In thousands)
|
|
|
Derivative Instruments
|
|
|
|
|
|
|
|
Gain (loss) on foreign currency forward exchange contracts
|
$
|
17,101
|
|
|
$
|
52,037
|
|
|
$
|
(916
|
)
|
|
Cost of sales
|
|
(474
|
)
|
|
551
|
|
|
33
|
|
|
Provision for income taxes
|
|
$
|
16,627
|
|
|
$
|
52,588
|
|
|
$
|
(883
|
)
|
|
Net income
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
|
Amortization of prior service (cost) credit
|
$
|
(461
|
)
|
|
$
|
465
|
|
|
$
|
1,037
|
|
|
(a)
|
Recognized actuarial loss
|
(7,142
|
)
|
|
(15,316
|
)
|
|
(15,788
|
)
|
|
(a)
|
Settlement loss
|
(1,772
|
)
|
|
(6,453
|
)
|
|
—
|
|
|
Other selling and administrative expenses
|
Curtailment (loss) gain
|
(415
|
)
|
|
8,639
|
|
|
—
|
|
|
Other selling and administrative expenses
|
|
(9,790
|
)
|
|
(12,665
|
)
|
|
(14,751
|
)
|
|
|
|
3,482
|
|
|
4,573
|
|
|
5,343
|
|
|
Provision for income taxes
|
|
$
|
(6,308
|
)
|
|
$
|
(8,092
|
)
|
|
$
|
(9,408
|
)
|
|
Net income
|
|
|
(a)
|
The amortization of prior service (cost) credit 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.
|
Currency Translation Adjustments
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 US dollar, partially offset by the strengthening of the Brazilian real against the US dollar. For
2015
, currency translation adjustments resulted in a net loss of
$213.8 million
, primarily due to the weakening of the Euro, Brazilian real, Mexican peso, and British pound sterling against the US dollar. For
2014
, currency translation adjustments resulted in a net loss of
$189.7 million
, primarily due to the weakening of the Euro, Mexican peso, British pound sterling, Russian ruble, and Brazilian real against the US dollar.
Note 7—Share-Based Payments
Mattel Stock Option Plans
In May 2015, Mattel’s stockholders approved the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan (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 as of December 31, 2015. 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. Similar provisions exist for non-employee directors. 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)
77 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, 2016
, there were approximately
26 million
shares of common stock available for grant remaining under the 2010 Plan.
As of
December 31, 2016
, total unrecognized compensation cost related to unvested share-based payments totaled
$85.1 million
and is expected to be recognized over a weighted-average period of
2.0 years
.
Stock Options
Mattel recognized compensation expense of
$10.5 million
,
$15.2 million
, and
$12.5 million
for stock options during
2016
,
2015
, and
2014
, respectively, which is included within other selling and administrative expenses in the consolidated statements of operations. Income tax benefits related to stock option activity during
2016
,
2015
, and
2014
totaled
$6.8 million
,
$5.5 million
, and
$3.5 million
, respectively. The 2016 income tax benefit related to stock options includes
$3.5 million
recognized as a result of the adoption of ASU 2016-09.
The fair value of options granted has 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 US Treasury zero-coupon issues approximating the expected life. The weighted average grant date fair value of options granted during
2016
,
2015
, and
2014
was
$4.09
,
$1.97
, and
$4.57
, respectively.
The following weighted average assumptions were used in determining the fair value of options granted:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected life (in years)
|
5.0
|
|
|
4.9
|
|
|
4.9
|
|
Risk-free interest rate
|
1.1
|
%
|
|
1.5
|
%
|
|
1.6
|
%
|
Volatility factor
|
25.3
|
%
|
|
23.1
|
%
|
|
23.7
|
%
|
Dividend yield
|
4.7
|
%
|
|
6.5
|
%
|
|
4.3
|
%
|
The following is a summary of stock option information and weighted average exercise prices for Mattel’s stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
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
|
17,900
|
|
|
$
|
27.39
|
|
|
10,523
|
|
|
$
|
30.77
|
|
|
9,218
|
|
|
$
|
27.48
|
|
Granted
|
3,498
|
|
|
32.67
|
|
|
9,112
|
|
|
23.37
|
|
|
3,373
|
|
|
35.33
|
|
Exercised
|
(1,539
|
)
|
|
22.13
|
|
|
(764
|
)
|
|
19.63
|
|
|
(1,891
|
)
|
|
22.35
|
|
Forfeited
|
(388
|
)
|
|
26.77
|
|
|
(717
|
)
|
|
31.34
|
|
|
(166
|
)
|
|
36.85
|
|
Canceled
|
(155
|
)
|
|
36.87
|
|
|
(254
|
)
|
|
35.07
|
|
|
(11
|
)
|
|
25.28
|
|
Outstanding at December 31
|
19,316
|
|
|
$
|
28.71
|
|
|
17,900
|
|
|
$
|
27.39
|
|
|
10,523
|
|
|
$
|
30.77
|
|
Exercisable at December 31
|
9,851
|
|
|
$
|
29.83
|
|
|
7,498
|
|
|
$
|
30.09
|
|
|
5,810
|
|
|
$
|
26.07
|
|
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 an option. The total intrinsic value of options exercised during
2016
,
2015
, and
2014
was
$15.8 million
,
$4.9 million
, and
$24.1 million
, respectively. At
December 31, 2016
, options outstanding had an intrinsic value of
$44.8 million
, with a weighted average remaining life of
7.5
years. At
December 31, 2016
, options exercisable had an intrinsic value of
$22.2 million
, with a weighted average remaining life of
6.3
years. At
December 31, 2016
, stock options vested or expected to vest totaled
18.9 million
shares, with a total intrinsic value of
$44.2 million
, weighted average exercise price of
$28.68
, and weighted average remaining life of
7.5
years. During
2016
, approximately
4 million
stock options vested. The total grant date fair value of stock options vested during
2016
,
2015
, and
2014
was approximately
$13 million
,
$12 million
, and
$12 million
, respectively.
Mattel uses treasury shares purchased under its share repurchase program to satisfy stock option exercises. Cash received from stock options exercised during
2016
,
2015
, and
2014
was
$34.1 million
,
$15.0 million
, and
$43.3 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
$40.2 million
,
$41.5 million
, and
$39.5 million
in
2016
,
2015
, and
2014
, respectively, and is included within other selling and administrative expenses in the consolidated statements of operations. Income tax benefits related to RSU activity during
2016
,
2015
, and
2014
totaled
$11.5 million
,
$11.0 million
, and
$10.6 million
, respectively. The 2016 income tax benefit related to RSUs includes
$0.8 million
recognized as a result of the adoption of ASU 2016-09.
The following is a summary of RSU information and weighted average grant date fair values for Mattel’s RSUs, excluding Performance RSUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
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
|
3,738
|
|
|
$
|
28.98
|
|
|
3,173
|
|
|
$
|
37.10
|
|
|
3,036
|
|
|
$
|
34.94
|
|
Granted
|
1,608
|
|
|
29.68
|
|
|
2,332
|
|
|
23.54
|
|
|
1,786
|
|
|
34.83
|
|
Vested
|
(1,756
|
)
|
|
30.25
|
|
|
(1,159
|
)
|
|
37.29
|
|
|
(1,426
|
)
|
|
29.77
|
|
Forfeited
|
(347
|
)
|
|
27.04
|
|
|
(608
|
)
|
|
34.67
|
|
|
(223
|
)
|
|
36.27
|
|
Unvested at December 31
|
3,244
|
|
|
$
|
28.85
|
|
|
3,738
|
|
|
$
|
28.98
|
|
|
3,173
|
|
|
$
|
37.10
|
|
At
December 31, 2016
, RSUs expected to vest totaled
3.1 million
shares, with a weighted average grant date fair value of
$27.07
. The total grant date fair value of RSUs vested during
2016
,
2015
, and
2014
was
$53.1 million
,
$43.2 million
, and
$42.5 million
, respectively.
In addition to the expense and share amounts described above, Mattel recognized compensation expense of
$3.2 million
during
2016
for Performance RSUs granted in connection with its January 1, 2016—December 31, 2018 LTIP performance cycle, more fully described in “Note 4 to the Consolidated Financial Statements—Employee Benefit Plans.” Income tax benefits related to Performance RSU compensation expense recognized in the consolidated statements of operations during
2016
totaled
$1.2 million
.
No
compensation expense and
no
related income tax benefit was recognized for Performance RSUs granted in connection with its January 1, 2014—December 31, 2016 LTIP performance cycle, also more fully described in "Note 4 to the Consolidated Financial Statements—Employee Benefit Plans," for the years ended
2016
,
2015
, and
2014
as actual results did not meet minimum performance thresholds.
Note 8—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. Certain of Mattel’s RSUs are considered participating securities because they contain 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,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands, except per share amounts)
|
Basic:
|
|
|
|
|
|
Net income
|
$
|
318,022
|
|
|
$
|
369,416
|
|
|
$
|
498,874
|
|
Less: Net income allocable to participating RSUs
|
(1,377
|
)
|
|
(3,179
|
)
|
|
(4,028
|
)
|
Net income available for basic common shares
|
$
|
316,645
|
|
|
$
|
366,237
|
|
|
$
|
494,846
|
|
Weighted average common shares outstanding
|
341,480
|
|
|
339,172
|
|
|
339,016
|
|
Basic net income per common share
|
$
|
0.93
|
|
|
$
|
1.08
|
|
|
$
|
1.46
|
|
Diluted:
|
|
|
|
|
|
Net income
|
$
|
318,022
|
|
|
$
|
369,416
|
|
|
$
|
498,874
|
|
Less: Net income allocable to participating RSUs
|
(1,377
|
)
|
|
(3,179
|
)
|
|
(4,028
|
)
|
Net income available for diluted common shares
|
$
|
316,645
|
|
|
$
|
366,237
|
|
|
$
|
494,846
|
|
Weighted average common shares outstanding
|
341,480
|
|
|
339,172
|
|
|
339,016
|
|
Weighted average common equivalent shares arising from:
|
|
|
|
|
|
Dilutive stock options and non-participating RSUs
|
2,753
|
|
|
576
|
|
|
1,752
|
|
Weighted average number of common and potential common shares
|
344,233
|
|
|
339,748
|
|
|
340,768
|
|
Diluted net income per common share
|
$
|
0.92
|
|
|
$
|
1.08
|
|
|
$
|
1.45
|
|
The calculation of potential common shares assumes the exercise of dilutive stock options and vesting of non-participating RSUs, net of assumed treasury share repurchases at average market prices. Nonqualified stock options and non-participating RSUs totaling
8.5 million
shares,
9.6 million
shares, and
2.8 million
shares were excluded from the calculation of diluted net income per common share for
2016
,
2015
, and
2014
, respectively, because they were antidilutive.
Note 9—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, 2016
and
2015
, Mattel held foreign currency forward exchange contracts with notional amounts of
$1.20 billion
and
$930.8 million
, respectively.
The following table presents Mattel’s derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
|
(In thousands)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
18,747
|
|
|
$
|
15,279
|
|
Foreign currency forward exchange contracts
|
Other noncurrent assets
|
|
5,782
|
|
|
1,611
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
24,529
|
|
|
$
|
16,890
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Prepaid expenses and other current assets
|
|
$
|
2,678
|
|
|
$
|
1,216
|
|
Total
|
|
|
$
|
27,207
|
|
|
$
|
18,106
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
Balance Sheet Classification
|
|
Fair Value
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
|
(In thousands)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Accrued liabilities
|
|
$
|
1,917
|
|
|
$
|
1,214
|
|
Foreign currency forward exchange contracts
|
Other noncurrent liabilities
|
|
223
|
|
|
219
|
|
Total derivatives designated as hedging instruments
|
|
|
$
|
2,140
|
|
|
$
|
1,433
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
Accrued liabilities
|
|
$
|
7,072
|
|
|
$
|
2,287
|
|
Total
|
|
|
$
|
9,212
|
|
|
$
|
3,720
|
|
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
|
|
Statements of
Operations
Classification
|
|
For the Year Ended
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
|
(In thousands)
|
|
|
Foreign currency forward exchange contracts:
|
|
|
|
|
|
|
|
Amount of gain recognized in OCI
|
$
|
18,733
|
|
|
$
|
37,926
|
|
|
$
|
39,931
|
|
|
|
Amount of gain (loss) reclassified from accumulated OCI to statements of operations
|
16,627
|
|
|
52,588
|
|
|
(883
|
)
|
|
Cost of sales
|
The net gains (losses) of
$16.6 million
,
$52.6 million
, and
$(0.9) million
reclassified from accumulated other comprehensive loss to the consolidated statements of operations during
2016
,
2015
, and
2014
, respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated As Hedging Instruments
|
|
Statements of Operations
Classification
|
|
For the Year Ended
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
|
(In thousands)
|
|
|
Amount of (loss) gain recognized in the statements of operations:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
$
|
(11,056
|
)
|
|
$
|
(51,679
|
)
|
|
$
|
(31,485
|
)
|
|
Non-operating income/expense
|
Cross currency swap contract
|
—
|
|
|
5,288
|
|
|
—
|
|
|
Non-operating income/ expense
|
Foreign currency forward exchange contracts
|
1,631
|
|
|
(265
|
)
|
|
732
|
|
|
Cost of sales
|
Total
|
$
|
(9,425
|
)
|
|
$
|
(46,656
|
)
|
|
$
|
(30,753
|
)
|
|
|
The net losses of
$9.4 million
,
$46.7 million
, and
$30.8 million
recognized in the consolidated statements of operations during
2016
,
2015
, and
2014
, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.
Note 10—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, 2016
and
2015
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, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
27,207
|
|
|
$
|
—
|
|
|
$
|
27,207
|
|
Available-for-sale security (b)
|
14,939
|
|
|
—
|
|
|
—
|
|
|
14,939
|
|
|
$
|
14,939
|
|
|
$
|
27,207
|
|
|
$
|
—
|
|
|
$
|
42,146
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
9,212
|
|
|
$
|
—
|
|
|
$
|
9,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
18,106
|
|
|
$
|
—
|
|
|
$
|
18,106
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts (a)
|
$
|
—
|
|
|
$
|
3,720
|
|
|
$
|
—
|
|
|
$
|
3,720
|
|
|
|
(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.
|
During 2015, Mattel sold its auction rate security and received proceeds of
$32.3 million
, resulting in a gain of
$1.3 million
for the year ended December 31, 2015. The fair value of the auction rate security was estimated using a discounted cash flow model based on (i) estimated interest rates, timing, and amount of cash flows, (ii) credit spreads, recovery rates, and credit quality of the underlying securities, (iii) illiquidity considerations, and (iv) market correlation.
The following table presents information about Mattel's investments measured and reported at fair value on a recurring basis using significant Level 3 inputs:
|
|
|
|
|
|
Level 3
|
|
(In thousands)
|
Balance at December 31, 2014
|
$
|
30,960
|
|
Proceeds from sale
|
(32,250
|
)
|
Gain on sale
|
1,290
|
|
Balance at December 31, 2015
|
$
|
—
|
|
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
2016
,
2015
, and
2014
, Mattel did not have any assets or liabilities measured and reported at fair value on a non-recurring basis in periods subsequent to initial recognition.
Other Financial Instruments
Mattel’s financial instruments include cash and equivalents, accounts receivable and payable, short-term borrowings, and accrued liabilities. The carrying value of these instruments approximate their fair value because of their short-term nature and 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
$2.18 billion
(compared to a carrying value of
$2.15 billion
) as of
December 31, 2016
and
$2.15 billion
(compared to a carrying value of
$2.10 billion
) as of
December 31, 2015
. 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 11—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, Chesterfield, Missouri, 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, 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
2016
,
2015
, and
2014
, contingent rental expense was not material.
The following table shows the future minimum obligations under lease commitments in effect at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
Operating
Leases
|
|
(In thousands)
|
2017
|
$
|
294
|
|
|
$
|
110,131
|
|
2018
|
294
|
|
|
94,431
|
|
2019
|
294
|
|
|
78,107
|
|
2020
|
25
|
|
|
69,738
|
|
2021
|
—
|
|
|
62,266
|
|
Thereafter
|
—
|
|
|
205,650
|
|
|
$
|
907
|
|
(a)
|
$
|
620,323
|
|
|
|
(a)
|
Includes
$0.1 million
of imputed interest.
|
Rental expense under operating leases amounted to
$110.1 million
,
$114.9 million
, and
$120.9 million
for
2016
,
2015
, and
2014
, respectively, net of sublease income of
$2.7 million
,
$2.7 million
, and
$2.6 million
in
2016
,
2015
, and
2014
, 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, 2016
contain provisions for future minimum payments as shown in the following table:
|
|
|
|
|
|
Licensing and
Similar
Agreements
|
|
(In thousands)
|
2017
|
$
|
105,641
|
|
2018
|
123,107
|
|
2019
|
91,793
|
|
2020
|
58,027
|
|
2021
|
9,431
|
|
Thereafter
|
4,451
|
|
|
$
|
392,450
|
|
Royalty expense for
2016
,
2015
, and
2014
was
$228.9 million
,
$264.6 million
, and
$242.4 million
, respectively.
The following table shows the future minimum obligations for purchases of inventory, services, and other as of
December 31, 2016
:
|
|
|
|
|
|
Other
Purchase
Obligations
|
|
(In thousands)
|
2017
|
$
|
409,298
|
|
2018
|
21,900
|
|
2019
|
12,206
|
|
2020
|
1,104
|
|
2021
|
—
|
|
|
$
|
444,508
|
|
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, 2016
and
2015
totaled
$15.5 million
and
$13.9 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
. Mattel believes that MGA’s claim should be barred as a matter of law, and intends to vigorously defend against it. 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. In light of that ruling, Mattel believes that it is reasonably possible that damages in this matter could range from
$0
to approximately
$12.5 million
. In addition, Mattel believes that if such damages are awarded, it is reasonably possible that pre-judgment interest, ranging from
$0
to approximately
$12.0 million
, could be awarded. Mattel may be entitled to an offset against any damages awarded to MGA. Mattel has not quantified the amount of any such offset as it is not currently estimable. As Mattel believes a loss in this matter is reasonably possible but not probable,
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 15
th
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 seeks 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 which must rule on its admissibility before it is transferred to the Superior 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 seeks 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 and are awaiting the decision.
Mattel believes that it is reasonably possible that a loss in this matter could range from
$0
to approximately
$16.5 million
. The high end of this range, approximately
$16.5 million
, is based on the calculation of the current amount of the damages (reported in the first court-appointed examination report submitted in the lawsuit), and loss of profits (indicated in the complaint by Yellowstone), including interest, inflation, currency adjustments, plus attorney's fees. Mattel do Brasil will be entitled to offset its counterclaim award of approximately
$7.5 million
, the current amount including inflation, and currency adjustment, against such loss. The existence of procedural matters that will be addressed to the Superior Court of Justice adds some uncertainty to the final outcome of the matter. Mattel do Brasil believes, however, that it has valid legal grounds for an appeal of the Appeals Court decision and currently does not believe that a loss is probable for this matter. Accordingly, a liability has not been accrued to date. Mattel do Brasil may be required by the Trial Court to place a bond for the full amount of the damage award in escrow pending an appeal decision by the Superior Court.
Note 12—Segment Information
Description of Segments
Mattel, through its subsidiaries, sells a broad variety of toy products which are grouped into
four
major brand categories:
Mattel Girls & Boys Brands
—including Barbie
®
fashion dolls and accessories (“Barbie”), Monster High
®
, Ever After High
®
, Polly Pocket
®
, and DC Super Hero Girls™ (collectively “Other Girls”), Hot Wheels
®
and Matchbox
®
vehicles and play sets (collectively “Wheels”), and CARS
®
, DC Comics
®
, WWE
®
Wrestling, Minecraft
®
, Max Steel
®
, BOOMco.
®
, Toy Story
®
, and games and puzzles (collectively “Entertainment”).
Fisher-Price Brands
—including Fisher-Price
®
, Little People
®
, BabyGear™, Laugh & Learn
®
, and Imaginext
®
(collectively “Core Fisher-Price”), Thomas & Friends
®
, Dora the Explorer
®
, Mickey Mouse
®
Clubhouse, and Disney Jake and the Never Land Pirates
®
(collectively “Fisher-Price Friends”), and Power Wheels
®
.
American Girl Brands
—including Truly Me
®
, Girl of the Year
®
, BeForever
®
, Bitty Baby
®
, and WellieWishers™. American Girl
®
Brands products are sold directly to consumers via its catalog, website, and proprietary retail stores, as well as sold directly to certain retailers.
Construction and Arts & Crafts Brands
—including MEGA BLOKS
®
and RoseArt
®
.
Mattel’s operating segments are: (i) North America, which consists of the US and Canada, (ii) International, and (iii) American Girl. Factors considered in determining the operating segments include the nature of business activities, the management structure directly accountable to the Chief Operating Decision Maker (“CODM”) for operating and administrative activities, availability of discrete financial information, and strategic priorities within the organizational structure. These factors correspond to the manner in which the CODM reviews and evaluates operating performance to make decisions about resources to be allocated to these operating segments.
The North America and International segments sell products in the Mattel Girls & Boys Brands, Fisher-Price Brands, and Construction and Arts & Crafts Brands categories, although some are developed and adapted for particular international markets.
Segment Data
The following tables present information about revenues, income, 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 CODM uses gross sales by segment as one of the metrics to measure segment performance. Such sales adjustments are included in the determination of segment income from operations based on the adjustments recorded in the financial accounting systems. Segment income represents each segment’s operating income, while consolidated operating income represents income from operations before net interest, other non-operating income, 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, share-based payments, and corporate headquarters functions managed on a worldwide basis, and the impact of changes in foreign currency rates on intercompany transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Revenues by Segment
|
|
|
|
|
|
North America
|
$
|
3,036,181
|
|
|
$
|
3,083,873
|
|
|
$
|
3,011,633
|
|
International
|
2,447,615
|
|
|
2,603,537
|
|
|
3,061,506
|
|
American Girl
|
589,918
|
|
|
596,218
|
|
|
645,309
|
|
Gross sales
|
6,073,714
|
|
|
6,283,628
|
|
|
6,718,448
|
|
Sales adjustments
|
(617,064
|
)
|
|
(581,015
|
)
|
|
(694,629
|
)
|
Net sales
|
$
|
5,456,650
|
|
|
$
|
5,702,613
|
|
|
$
|
6,023,819
|
|
|
|
|
|
|
|
Segment Income
|
|
|
|
|
|
North America
|
$
|
564,378
|
|
|
$
|
538,249
|
|
|
$
|
459,833
|
|
International
|
291,230
|
|
|
321,068
|
|
|
359,904
|
|
American Girl
|
106,423
|
|
|
69,899
|
|
|
113,571
|
|
|
962,031
|
|
|
929,216
|
|
|
933,308
|
|
Corporate and other expense (a)
|
(442,798
|
)
|
|
(388,294
|
)
|
|
(279,594
|
)
|
Operating income
|
519,233
|
|
|
540,922
|
|
|
653,714
|
|
Interest expense
|
95,118
|
|
|
85,270
|
|
|
79,271
|
|
Interest (income)
|
(9,144
|
)
|
|
(7,230
|
)
|
|
(7,382
|
)
|
Other non-operating expense (income), net
|
23,517
|
|
|
(1,033
|
)
|
|
(5,085
|
)
|
Income before income taxes
|
$
|
409,742
|
|
|
$
|
463,915
|
|
|
$
|
586,910
|
|
|
|
(a)
|
Corporate and other expense includes (i) incentive compensation expense of
$16.5 million
,
$50.2 million
, and
$25.2 million
for
2016
,
2015
, and
2014
, respectively, (ii)
$39.9 million
,
$72.0 million
, and
$51.8 million
of charges related to severance and other termination-related costs for
2016
,
2015
, and
2014
, respectively, (iii) share-based compensation expense of
$53.9 million
,
$56.7 million
, and
$52.0 million
for
2016
,
2015
, and
2014
, respectively, and (iv) legal fees associated with MGA litigation matters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Depreciation and Amortization by Segment
|
|
|
|
|
|
North America
|
$
|
118,047
|
|
|
$
|
122,757
|
|
|
$
|
118,633
|
|
International
|
88,414
|
|
|
90,269
|
|
|
86,011
|
|
American Girl
|
23,023
|
|
|
22,054
|
|
|
18,434
|
|
|
229,484
|
|
|
235,080
|
|
|
223,078
|
|
Corporate and other
|
32,856
|
|
|
30,347
|
|
|
25,623
|
|
Depreciation and amortization
|
$
|
262,340
|
|
|
$
|
265,427
|
|
|
$
|
248,701
|
|
Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Assets by Segment
|
|
|
|
|
|
North America
|
$
|
677,203
|
|
|
$
|
764,945
|
|
|
$
|
698,357
|
|
International
|
766,584
|
|
|
759,709
|
|
|
778,849
|
|
American Girl
|
154,924
|
|
|
108,414
|
|
|
108,667
|
|
|
1,598,711
|
|
|
1,633,068
|
|
|
1,585,873
|
|
Corporate and other
|
130,304
|
|
|
99,552
|
|
|
70,334
|
|
Accounts receivable and inventories, net
|
$
|
1,729,015
|
|
|
$
|
1,732,620
|
|
|
$
|
1,656,207
|
|
Mattel sells a broad variety of toy products, which are grouped into four major categories: Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands. The table below presents worldwide revenues by brand category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Worldwide Revenues by Brand Category
|
|
|
|
|
|
Mattel Girls & Boys Brands
|
$
|
3,194,100
|
|
|
$
|
3,464,195
|
|
|
$
|
3,897,218
|
|
Fisher-Price Brands
|
1,888,146
|
|
|
1,852,219
|
|
|
1,842,550
|
|
American Girl Brands
|
570,770
|
|
|
571,957
|
|
|
618,678
|
|
Construction and Arts & Crafts Brands
|
377,570
|
|
|
351,747
|
|
|
314,994
|
|
Other
|
43,128
|
|
|
43,510
|
|
|
45,008
|
|
Gross sales
|
6,073,714
|
|
|
6,283,628
|
|
|
6,718,448
|
|
Sales adjustments
|
(617,064
|
)
|
|
(581,015
|
)
|
|
(694,629
|
)
|
Net sales
|
$
|
5,456,650
|
|
|
$
|
5,702,613
|
|
|
$
|
6,023,819
|
|
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,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Revenues
|
|
|
|
|
|
North American Region (a)
|
$
|
3,626,099
|
|
|
$
|
3,680,091
|
|
|
$
|
3,656,942
|
|
International Region:
|
|
|
|
|
|
Europe
|
1,293,302
|
|
|
1,388,753
|
|
|
1,687,039
|
|
Latin America
|
636,535
|
|
|
711,041
|
|
|
909,432
|
|
Asia Pacific
|
517,778
|
|
|
503,743
|
|
|
465,035
|
|
Total International Region
|
2,447,615
|
|
|
2,603,537
|
|
|
3,061,506
|
|
Gross sales
|
6,073,714
|
|
|
6,283,628
|
|
|
6,718,448
|
|
Sales adjustments
|
(617,064
|
)
|
|
(581,015
|
)
|
|
(694,629
|
)
|
Net sales
|
$
|
5,456,650
|
|
|
$
|
5,702,613
|
|
|
$
|
6,023,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Long-Lived Assets
|
|
|
|
|
|
North American Region (b)
|
$
|
1,566,621
|
|
|
$
|
1,557,153
|
|
|
$
|
1,656,985
|
|
International Region
|
1,478,747
|
|
|
1,466,003
|
|
|
1,492,633
|
|
Consolidated total
|
$
|
3,045,368
|
|
|
$
|
3,023,156
|
|
|
$
|
3,149,618
|
|
|
|
(a)
|
Revenues for the North American Region include revenues attributable to the US of
$3.39 billion
,
$3.46 billion
, and
$3.41 billion
for
2016
,
2015
, and
2014
, respectively.
|
|
|
(b)
|
Long-lived assets for the North American Region include long-lived assets attributable to the US of
$1.57 billion
,
$1.57 billion
, and
$1.65 billion
for
2016
,
2015
, and
2014
, respectively.
|
Major Customers
Sales to Mattel’s three largest customers accounted for
39%
,
37%
, and
35%
of worldwide consolidated net sales for
2016
,
2015
, and
2014
, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In billions)
|
Wal-Mart
|
$
|
1.1
|
|
|
$
|
1.0
|
|
|
$
|
1.1
|
|
Toys “R” Us
|
0.6
|
|
|
0.6
|
|
|
0.6
|
|
Target
|
0.4
|
|
|
0.5
|
|
|
0.5
|
|
The North America segment sells products to each of Mattel’s three largest customers. The International segment sells products to Wal-Mart and Toys “R” Us. The American Girl segment sells its children’s publications to each of Mattel's three largest customers.
Note 13—Supplemental Financial Information
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
Inventories include the following:
|
|
|
|
Raw materials and work in process
|
$
|
112,327
|
|
|
$
|
105,917
|
|
Finished goods
|
501,471
|
|
|
481,604
|
|
|
$
|
613,798
|
|
|
$
|
587,521
|
|
Property, plant, and equipment, net includes the following:
|
|
|
|
Land
|
$
|
25,113
|
|
|
$
|
27,049
|
|
Buildings
|
280,226
|
|
|
275,266
|
|
Machinery and equipment
|
828,969
|
|
|
764,657
|
|
Software
|
356,622
|
|
|
331,251
|
|
Tools, dies, and molds
|
869,385
|
|
|
840,586
|
|
Capital leases
|
23,970
|
|
|
23,970
|
|
Leasehold improvements
|
261,254
|
|
|
245,082
|
|
|
2,645,539
|
|
|
2,507,861
|
|
Less: accumulated depreciation
|
(1,871,574
|
)
|
|
(1,766,714
|
)
|
|
$
|
773,965
|
|
|
$
|
741,147
|
|
Other noncurrent assets include the following:
|
|
|
|
Deferred income taxes
|
$
|
508,363
|
|
|
$
|
510,928
|
|
Nonamortizable identifiable intangibles
|
458,589
|
|
|
488,144
|
|
Identifiable intangibles (net of amortization of $153.7 million and $131.5 million at December 31, 2016 and 2015, respectively)
|
201,859
|
|
|
212,161
|
|
Other
|
223,326
|
|
|
197,184
|
|
|
$
|
1,392,137
|
|
|
$
|
1,408,417
|
|
Accrued liabilities include the following:
|
|
|
|
Royalties
|
$
|
107,077
|
|
|
$
|
122,153
|
|
Advertising and promotion
|
85,116
|
|
|
75,991
|
|
Taxes other than income taxes
|
67,555
|
|
|
66,848
|
|
Incentive compensation
|
18,830
|
|
|
52,721
|
|
Other
|
350,248
|
|
|
340,469
|
|
|
$
|
628,826
|
|
|
$
|
658,182
|
|
Other noncurrent liabilities include the following:
|
|
|
|
Benefit plan liabilities
|
$
|
192,466
|
|
|
$
|
195,916
|
|
Noncurrent tax liabilities
|
96,871
|
|
|
106,584
|
|
Other
|
156,831
|
|
|
169,139
|
|
|
$
|
446,168
|
|
|
$
|
471,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
December 31,
2016
|
|
December 31,
2015
|
|
December 31,
2014
|
|
(In thousands)
|
Currency transaction (losses) gains included in:
|
|
|
|
|
|
Operating income
|
$
|
(164,042
|
)
|
|
$
|
(25,715
|
)
|
|
$
|
44,060
|
|
Other non-operating (expense) income, net
|
(27,290
|
)
|
|
(8,291
|
)
|
|
2,827
|
|
Net transaction (losses) gains
|
$
|
(191,332
|
)
|
|
$
|
(34,006
|
)
|
|
$
|
46,887
|
|
Other selling and administrative expenses include the following:
|
|
|
|
|
|
Design and development
|
$
|
215,304
|
|
|
$
|
217,816
|
|
|
$
|
209,467
|
|
Identifiable intangible asset amortization
|
22,215
|
|
|
27,923
|
|
|
36,704
|
|
Bad debt expense
|
9,165
|
|
|
5,813
|
|
|
11,507
|
|
Note 14—Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
(In thousands, except per share amounts)
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
Net sales
|
$
|
869,399
|
|
|
$
|
957,276
|
|
|
$
|
1,795,575
|
|
|
$
|
1,834,400
|
|
Gross profit
|
388,671
|
|
|
433,567
|
|
|
870,765
|
|
|
861,388
|
|
Advertising and promotion expenses
|
86,943
|
|
|
94,771
|
|
|
202,900
|
|
|
250,333
|
|
Other selling and administrative expenses
|
350,874
|
|
|
350,456
|
|
|
350,469
|
|
|
348,412
|
|
Operating (loss) income
|
(49,146
|
)
|
|
(11,660
|
)
|
|
317,396
|
|
|
262,643
|
|
(Loss) Income before income taxes
|
(93,479
|
)
|
|
(29,752
|
)
|
|
294,028
|
|
|
238,945
|
|
Net (loss) income (a)
|
(72,959
|
)
|
|
(19,114
|
)
|
|
236,250
|
|
|
173,845
|
|
Net (loss) income per common share—basic
|
$
|
(0.21
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.69
|
|
|
$
|
0.51
|
|
Weighted average number of common shares
|
340,369
|
|
|
340,926
|
|
|
341,961
|
|
|
342,653
|
|
Net (loss) income per common share—diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.68
|
|
|
$
|
0.50
|
|
Weighted average number of common and potential common shares
|
340,369
|
|
|
340,926
|
|
|
344,226
|
|
|
344,996
|
|
Dividends declared per common share
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
Common stock market price:
|
|
|
|
|
|
|
|
High
|
$
|
33.62
|
|
|
$
|
34.26
|
|
|
$
|
34.12
|
|
|
$
|
33.09
|
|
Low
|
24.87
|
|
|
28.89
|
|
|
30.28
|
|
|
27.55
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
Net sales
|
$
|
922,749
|
|
|
$
|
988,152
|
|
|
$
|
1,791,968
|
|
|
$
|
1,999,744
|
|
Gross profit
|
450,448
|
|
|
472,858
|
|
|
879,597
|
|
|
1,003,455
|
|
Advertising and promotion expenses
|
102,428
|
|
|
104,744
|
|
|
213,245
|
|
|
297,435
|
|
Other selling and administrative expenses
|
402,487
|
|
|
367,551
|
|
|
365,579
|
|
|
411,967
|
|
Operating (loss) income
|
(54,467
|
)
|
|
563
|
|
|
300,773
|
|
|
294,053
|
|
(Loss) Income before income taxes
|
(73,147
|
)
|
|
(19,898
|
)
|
|
286,139
|
|
|
270,821
|
|
Net (loss) income (a)
|
(58,177
|
)
|
|
(11,351
|
)
|
|
223,784
|
|
|
215,160
|
|
Net (loss) income per common share—basic
|
$
|
(0.17
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.66
|
|
|
$
|
0.63
|
|
Weighted average number of common shares
|
338,579
|
|
|
338,843
|
|
|
339,420
|
|
|
339,815
|
|
Net (loss) income per common share—diluted
|
$
|
(0.17
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.66
|
|
|
$
|
0.63
|
|
Weighted average number of common and potential common shares
|
338,579
|
|
|
338,843
|
|
|
339,790
|
|
|
340,364
|
|
Dividends declared per common share
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
|
$
|
0.38
|
|
Common stock market price:
|
|
|
|
|
|
|
|
High
|
$
|
30.47
|
|
|
$
|
30.20
|
|
|
$
|
26.34
|
|
|
$
|
27.69
|
|
Low
|
22.61
|
|
|
22.65
|
|
|
21.03
|
|
|
19.83
|
|
|
|
(a)
|
Net loss for the first and second quarters of
2016
included net discrete tax expense of
$0.2 million
and net discrete tax benefits of
$4.0 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 for the third and fourth quarters of
2016
included net discrete tax benefits of
$9.0 million
and $
4.0 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 tax law changes, and the adoption of a new accounting pronouncement. Net loss for the first and second quarters of
2016
included net discrete tax expense of
$0.7 million
and net discrete tax benefits of
$4.3 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 for the third and fourth quarters of
2016
included net discrete tax expense of
$0.8 million
and net discrete tax benefits of
$16.3 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 tax law changes.
|
Note 15—Subsequent Event
On
January 25, 2017
, Mattel announced that its Board of Directors declared a first quarter dividend of
$0.38
per common share. The dividend is payable on
March 3, 2017
to stockholders of record on
February 16, 2017
.
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
None.