

	For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
	(In thousands)
Current
Federal	$	5,520		$	3,935		$	(3,153	)
State	2,170			1,340			1,885
Foreign	68,837			95,404			113,315
	76,527			100,679			112,047
Deferred
Federal	(5,610		)	(4,630		)	422,397
State	68			(3,368		)	38,819
Foreign	(15,761		)	23,515			(19,929		)
	(21,303		)	15,517			441,287
Provision for income taxes	$	55,224		$	116,196		$	553,334

Deferred income taxes are provided principally for tax credit carryforwards, net operating loss carryforwards, research and development expenses, employee compensation-related expenses, and certain other reserves that are recognized in different years for financial statement and income tax reporting purposes. In the fourth quarter of 2019, Mattel transferred certain intangible property rights among its wholly-owned subsidiaries, which resulted in an increase in deferred tax assets of approximately $245 million. Based on available objective evidence, management believes it is not more-likely-than-not that these additional deferred tax assets will be realizable as of December 31, 2019, and therefore, are offset by a full valuation allowance. Mattel’s deferred income tax assets (liabilities) are composed of the following:



	December 31, 2019			December 31, 2018
	(In thousands)
Tax credit carryforwards	$	59,640		$	64,895
Research and development expenses	58,340			76,906
Net operating loss carryforwards	234,640			187,741
Allowances and reserves	100,896			94,168
Deferred compensation	67,689			63,641
Postretirement benefits	33,839			24,666
Intangible assets	245,138			419
Other	43,485			48,262
Gross deferred income tax assets	843,667			560,698
Intangible assets	(190,677		)	(196,012		)
Other	(31,024		)	(15,782		)
Gross deferred income tax liabilities	(221,701		)	(211,794		)
Deferred income tax asset valuation allowances	(610,560		)	(365,820		)
Net deferred income tax assets (liabilities)	$	11,406		$	(16,916	)

As of December 31, 2019, Mattel had federal, state and foreign loss carryforwards totaling $672.1 million and tax credit carryforwards of $52.6 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:

Periodically, Mattel considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely-than-not that some or all of the deferred tax assets will not be realized. During the third quarter of 2017, Mattel established a valuation allowance on U.S. deferred tax assets that will more than likely not be realized due to the determination that negative evidence outweighed the positive evidence. As of December 31, 2019, Mattel's valuation allowance on its federal and state deferred tax assets was approximately $300 million. Changes in the valuation allowance in 2019 primarily related to current year losses and credits generated. As of December 31, 2018, Mattel's valuation allowance on its federal and state deferred tax assets was approximately $291 million. Changes in the valuation allowance in 2018 primarily related to the utilization of loss and credit carryforwards against the tax on the inclusion of accumulated foreign earnings under the U.S. Tax Act, offset by current year losses and credits generated.

In addition, as of December 31, 2019, management determined that a valuation allowance of approximately $311 million was required for certain foreign deferred tax assets that will more than likely not be realized due to the determination that negative evidence outweighed the positive evidence. Changes in the valuation allowance for 2019 primarily related to increases in the valuation allowance as related to the transfer of intangible property rights as described above. For the remaining foreign deferred tax assets without a valuation allowance, management believes it is more-likely-than-not that Mattel will generate sufficient taxable income in the appropriate future periods to realize the benefit of the remaining deferred income tax assets. As of December 31, 2018, management determined that a valuation allowance of approximately $75 million was required for certain foreign deferred tax assets that will more than likely not be realized due to the determination that negative evidence outweighed the positive evidence. Changes in the valuation allowance for 2018 primarily related to increases in the valuation allowance related to losses without benefits, offset by decreases in the valuation allowance for certain deferred tax assets and expirations of tax loss and/or tax credit carryforwards.



	For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
	(In thousands)
Benefit at U.S. federal statutory rate	$	(33,240	)	$	(87,592	)	$	(175,436	)
Increase resulting from:
U.S. valuation allowance	19,141			64,907			558,976
Foreign earnings taxed at different rates, including foreign losses without benefit	51,612			103,231			266,807
U.S. Tax Act (a)	—			3,709			(107,049		)
State and local taxes, net of U.S. federal (expense) benefit	2,438			(2,028		)	2,254
Adjustments to previously accrued taxes	14,160			6,621			5,159
Change in indefinite reinvestment assertion	(2,700		)	14,566			—
Other (b)	3,813			12,782			2,623
Provision for income taxes	$	55,224		$	116,196		$	553,334

In assessing whether uncertain tax positions should be recognized in its financial statements, Mattel first determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, Mattel presumes that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. For tax positions that meet the more-likely-than-not recognition threshold, Mattel measures the amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Mattel recognizes unrecognized tax benefits in the first financial reporting period in which information becomes available indicating that such benefits will more-likely-than-not be realized.

Mattel records a reserve for unrecognized tax benefits for U.S. federal, state, local, and foreign tax positions related primarily to transfer pricing, tax credits claimed, tax nexus, and apportionment. For each reporting period, management applies a consistent methodology to measure unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant. Mattel’s measurement of its reserve for unrecognized tax benefits is based on management’s assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax audits, lapsing of applicable statutes of limitations, identification of new issues, and any administrative guidance or developments.



	For the Year Ended
	December 31, 2019			December 31, 2018			December 31, 2017
	(In thousands)
Unrecognized tax benefits at January 1	$	119,818		$	116,070		$	109,347
Increases for positions taken in current year	3,836			7,548			4,171
Increases for positions taken in a prior year	29,487			25,239			19,318
Decreases for positions taken in a prior year	(10,150		)	(1,813		)	(5,637		)
Decreases for settlements with taxing authorities	(1,982		)	(1,143		)	(2,349		)
Decreases for lapses in the applicable statute of limitations	(3,080		)	(26,083		)	(8,780		)
Unrecognized tax benefits at December 31	$	137,929		$	119,818		$	116,070

Mattel recognized a decrease of interest and penalties of $1.6 million in 2019, an increase of $7.9 million in 2018, and an increase of $1.6 million in 2017, related to unrecognized tax benefits, which are reflected in the provision for income taxes in the consolidated statements of operations. As of December 31, 2019, Mattel accrued $24.8 million in interest and penalties related to unrecognized tax benefits, all of which would impact the effective tax rate if recognized. As of December 31, 2018, Mattel accrued $26.4 million in interest and penalties related to unrecognized tax benefits, all of which would impact the effective tax rate if recognized.

Effects of the U.S. Tax Act were required to be accounted for in the period of enactment (the fourth quarter of 2017) for calendar year-end companies. Staff Accounting Bulletin ("SAB") 118 was issued shortly thereafter to address the application of U.S. GAAP in the period of enactment when a company is unable to complete the accounting for certain income tax effects of the U.S. Tax Act, extending the "measurement period" to one year from the enactment date (i.e. extended to the fourth quarter of 2018). Revisions to the tax impact for the period of enactment should be accounted for each period (not to extend beyond one-year) as the estimate is refined. The U.S. Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the federal corporate income tax rate from 35% to 21% effective January 1, 2018, implementing the territorial tax system, and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. There was no change in the 2017 tax charge related to the remeasurement of the U.S. net deferred tax assets recorded in 2017.

As of the fourth quarter of 2018, at the close of the SAB 118 measurement period, Mattel recorded a $3.7 million tax expense related to the deemed repatriation of accumulated foreign earnings (net of related valuation allowance change). In January 2018, the FASB issued guidance stating that a company must make an accounting policy election of either (i) treating taxes due on future U.S. inclusions in taxable income related to Global Intangible Low-Taxed Income ("GILTI") as a current-period expense when incurred (the "period cost method") or (ii) factoring such amounts into a company’s measurement of its deferred taxes (the "deferred method"). Mattel has elected the period cost method with respect to reporting taxes due on GILTI income inclusions.

On January 1, 2018, Mattel adopted ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which required Mattel to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. Previously, the income tax effect of intercompany transfers of assets was deferred until the asset was sold to an outside party or otherwise recognized (e.g., depreciated, amortized, impaired). The new guidance requires Mattel to defer only the income tax effects of intercompany transfers of inventory. A cumulative effect adjustment of $9.4 million was recorded as an increase to beginning retained earnings in the first quarter of 2018.

In the normal course of business, Mattel is regularly audited by federal, state, local and foreign tax authorities. Mattel remains subject to IRS examination for the 2016 through 2019 tax years. Mattel files multiple state and local income tax returns and remains subject to examination in various jurisdictions, including California for the 2008 through 2019 tax years, New York for the 2017 through 2019 tax years, and Wisconsin for the 2009 through 2019 tax years. Mattel files multiple foreign income tax returns and remains subject to examination in various foreign jurisdictions including Hong Kong for the 2012 through 2019 tax years, Brazil for the 2014 through 2019 tax years, Mexico for the 2012 through 2019 tax years, Netherlands for the 2014 through 2019 tax years, and Russia for the 2016 through 2019 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 $12.3 million related to the settlement of tax audits and/or the expiration of statutes of limitations. The ultimate settlement of any issue with the applicable taxing authority could have a material impact on Mattel’s consolidated financial statements.

Mattel has recorded a deferred tax liability of $11.9 million and $14.6 million related to undistributed earnings of certain foreign subsidiaries as of December 31, 2019 and December 31, 2018, respectively. The impact in 2019 was a tax benefit of $2.7 million mainly related to withholding tax rate change during the year. Taxes have not been provided on approximately $6.7 billion of undistributed foreign U.S. GAAP retained earnings of which $4.7 billion was previously taxed under the Tax Act. The determination of any incremental tax liability associated with these earnings is not practicable due to the complexity of local country withholding rules and interactions with tax treaties, foreign exchange considerations, and the diversity of state income tax treatment on actual distribution. Mattel will remit reinvested earnings of its foreign subsidiaries for which a deferred tax liability has been recorded when the Company determines that it is advantageous for business operations or cash management purposes.