Leases

12 Months Ended

Dec. 31, 2019

Mattel routinely enters into noncancelable lease agreements primarily 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 and termination options.

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 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, primarily related to American Girl leases, 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. During 2019, 2018, and 2017, contingent rental expense was not material, 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 December 31, 2019 consolidated balance sheet was as follows:



	December 31, 2019
	(In thousands, except years and percentage information)
Right-of-use assets, net	$	303,187

Accrued liabilities	$	74,065
Noncurrent lease liabilities	270,853
Total lease liabilities	$	344,918

Weighted average remaining lease term	6.6 years

Weighted average discount rate	7.9		%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the year ended December 31, 2019 were $142.1 million. Of the $142.1 million, $44 million relate to short-term and variable lease costs, which primarily relate to common area maintenance charges, management fees, taxes, and storage fees. Sublease rental income was $5.7 million in 2019.

Supplemental information related to leases was as follows:



	For the Year Ended December 31, 2019
	(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities	$	105,015
Right-of-use assets obtained in exchange for new operating lease liabilities	$	38,795

The following table shows the future maturities of lease liabilities for leases in effect as of December 31, 2019:



Years Ending December 31,	Lease Liabilities
	(In thousands)
2020	$	96,611
2021	84,345
2022	63,885
2023	46,726
2024	32,709
Thereafter	126,003
	450,279
Less: imputed interest	(105,361		)
	$	344,918

As of December 31, 2018, future minimum lease payments under long-term noncancelable lease as classified under ASC 840 were as follow:



	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

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(a)	Includes minimal imputed interest.

Rental expense for operating leases under ASC 840 was $127.1 million and $137.4 million for 2018 and 2017, respectively, net of sublease income of $3.0 million and $2.9 million in 2018 and 2017, respectively.