Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

12. Fair Value Measurements

The following table presents information about Mattel’s assets and liabilities measured and reported in the financial statements at fair value 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 measured and reported at fair value on a recurring basis include the following:

	September 30, 2012
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Foreign currency forward exchange contracts (a)	$	—	$	19,868	$	—	$	19,868
Auction rate securities (b)		—		—		13,656		13,656
Total assets	$	—	$	19,868	$	13,656	$	33,524
Liabilities:
Foreign currency forward exchange contracts (a)	$	—	$	11,743	$	—	$	11,743

	September 30, 2011
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Foreign currency forward exchange contracts (a)	$	—	$	25,301	$	—	$	25,301
Auction rate securities (b)		—		—		21,000		21,000
Total assets	$	—	$	25,301	$	21,000	$	46,301
Liabilities:
Foreign currency forward exchange contracts (a)	$	—	$	10,954	$	—	$	10,954

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Foreign currency forward exchange contracts (a)	$	—	$	31,896	$	—	$	31,896
Auction rate securities (b)		—		—		15,630		15,630
Total assets	$	—	$	31,896	$	15,630	$	47,526
Liabilities:
Foreign currency forward exchange contracts (a)	$	—	$	4,312	$	—	$	4,312

(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 auction rate securities is 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 assets measured and reported at fair value on a recurring basis using significant Level 3 inputs:

	Level 3
	(In thousands)
Balance at December 31, 2011	$	15,630
Net unrealized loss		(1,974	)
Balance at September 30, 2012	$	13,656

Other Financial Instruments

Mattel’s financial instruments include cash and equivalents, accounts receivable and payable, short-term borrowings, and accrued liabilities. The carrying amount of these instruments approximates fair value because of their short-term nature.

The estimated fair value of Mattel’s long-term debt, including the current portion, was $1.63 billion (compared to a carrying amount of $1.5 billion) as of September 30, 2012, $1.04 billion (compared to a carrying amount of $960.0 million) as of September 30, 2011, and $1.63 billion (compared to a carrying amount of $1.55 billion) as of December 31, 2011. 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.