Leases

9 Months Ended

Sep. 30, 2019

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

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

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

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

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



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

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

Weighted average remaining lease term	6.6 years

Weighted average discount rate	8.0		%

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

Supplemental information related to leases was as follows:



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

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



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

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



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

_______________________________________


(a)	Includes minimal imputed interest.

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