Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments

11. 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 September 30, 2012, September 30, 2011, and December 31, 2011, Mattel held foreign currency forward exchange contracts with notional amounts of approximately $1.33 billion, $1.22 billion, and $1.14 billion, respectively.

The following table presents Mattel’s derivative assets and liabilities:

	Asset Derivatives
	Balance Sheet Classification		Fair Value
			September 30, 2012		September 30, 2011		December 31, 2011
			(In thousands)
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts		Prepaid expenses and other current assets	$	19,403	$	17,248	$	29,043
Foreign currency forward exchange contracts		Other noncurrent assets		465		8,053		2,853
Total derivatives designated as hedging instruments			$	19,868	$	25,301	$	31,896
Total			$	19,868	$	25,301	$	31,896

	Liability Derivatives
	Balance Sheet Classification		Fair Value
			September 30, 2012		September 30, 2011		December 31, 2011
			(In thousands)
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts		Accrued liabilities	$	8,528	$	1,842	$	1,347
Foreign currency forward exchange contracts		Other noncurrent liabilities		394		42		35
Total derivatives designated as hedging instruments			$	8,922	$	1,884	$	1,382
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts		Accrued liabilities	$	2,821	$	9,070	$	2,930
Total			$	11,743	$	10,954	$	4,312

The following tables present the classification and amount of gains and losses, net of tax, from derivatives reported in the consolidated statements of operations:

	For the Three Months Ended September 30, 2012				For the Three Months Ended September 30, 2011					Statements of Operations Classification
	Amount of Gain (Loss) Recognized in OCI		Amount of Gain (Loss) Reclassified from Accumulated OCI to Statements of Operations		Amount of Gain (Loss) Recognized in OCI		Amount of Gain (Loss) Reclassified from Accumulated OCI to Statements of Operations
	(In thousands)
Derivatives designated as hedging instruments
Foreign currency forward exchange contracts	$	3,933	$	12,573	$	24,521	$	(8,402	)		Cost of sales

	For the Nine Months Ended September 30, 2012				For the Nine Months Ended September 30, 2011					Statements of Operations Classification
	Amount of Gain (Loss) Recognized in OCI		Amount of Gain (Loss) Reclassified from Accumulated OCI to Statements of Operations		Amount of Gain (Loss) Recognized in OCI		Amount of Gain (Loss) Reclassified from Accumulated OCI to Statements of Operations
	(In thousands)
Derivatives designated as hedging instruments
Foreign currency forward exchange contracts	$	14,713	$	21,439	$	1,564	$	(9,166	)		Cost of sales

The net gains of $12.6 million and $21.4 million reclassified from accumulated OCI to the statements of operations for the three and nine months ended September 30, 2012, respectively, and the net losses of $8.4 million and $9.2 million reclassified from accumulated OCI to the statements of operations for the three and nine months ended September 30, 2011, respectively, are offset by the changes in cash flows associated with the underlying hedged transactions.

	Amount of Gain (Loss) Recognized in the Statements of Operations						Statements of Operations Classification
	For the Three Months Ended September 30, 2012			For the Three Months Ended September 30, 2011
	(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts	$	15,796		$	(47,310	)	Non-operating income/expense
Foreign currency forward exchange contracts		(102	)		(1,349	)	Cost of sales
Total	$	15,694		$	(48,659	)

	Amount of Gain (Loss) Recognized in the Statements of Operations					Statements of Operations Classification
	For the Nine Months Ended September 30, 2012			For the Nine Months Ended September 30, 2011
	(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts	$	7,689		$	5,260	Non-operating income/expense
Foreign currency forward exchange contracts		(637	)		1,387	Cost of sales
Total	$	7,052		$	6,647

The net gains of $15.7 million and $7.1 million recognized in the statements of operations for the three and nine months ended September 30, 2012, respectively, and the net loss of $48.7 million and net gain of $6.6 million recognized in the statements of operations for the three and nine months ended September 30, 2011, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.