Derivative Instruments

3 Months Ended

Mar. 31, 2013

Derivative Instruments

12. 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 March 31, 2013, March 31, 2012, and December 31, 2012, Mattel held foreign currency forward exchange contracts with notional amounts of approximately $1.55 billion, $1.39 billion, and $1.36 billion, respectively.

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

	Asset Derivatives
	Balance Sheet Classification		Fair Value
			March 31, 2013		March 31, 2012		December 31, 2012
					(In thousands)
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts		Prepaid expenses and other current assets	$	10,868	$	19,553	$	3,064
Foreign currency forward exchange contracts		Other noncurrent assets		—		18		4
Total derivatives designated as hedging instruments			$	10,868	$	19,571	$	3,068

	Liability Derivatives
	Balance Sheet Classification		Fair Value
			March 31, 2013		March 31, 2012		December 31, 2012
					(In thousands)
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts		Accrued liabilities	$	3,664	$	1,927	$	8,093
Foreign currency forward exchange contracts		Other noncurrent liabilities		—		9		177
Total derivatives designated as hedging instruments			$	3,664	$	1,936	$	8,270
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts		Accrued liabilities	$	1,240	$	2,035	$	487
Total			$	4,904	$	3,971	$	8,757

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 March 31, 2013				For the Three Months Ended March 31, 2012					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	$	8,138	$	1,129	$	(1,188	)	$	4,538		Cost of sales

The net gains of $1.1 million and $4.5 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three months ended March 31, 2013 and 2012, 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 March 31, 2013			For the Three Months Ended March 31, 2012
	(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts	$	(13,775	)	$	20,448	Non-operating income/expense
Foreign currency forward exchange contracts		403			247	Cost of sales
Total	$	(13,372	)	$	20,695

The net loss of $13.4 million and net gain of $20.7 million recognized in the consolidated statements of operations for the three months ended March 31, 2013 and 2012, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.