Derivative Instruments

9 Months Ended

Sep. 30, 2014

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 September 30, 2014, September 30, 2013, and December 31, 2013, Mattel held foreign currency forward exchange contracts with notional amounts of approximately $1.11 billion, $1.46 billion, and $1.55 billion, respectively.

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

	Asset Derivatives
	Balance Sheet Classification		Fair Value
			September 30, 2014		September 30, 2013		December 31, 2013
					(In thousands)
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts		Prepaid expenses and other current assets	$	31,908	$	1,146	$	415
Foreign currency forward exchange contracts		Other noncurrent assets		1,829		—		—
Total derivatives designated as hedging instruments			$	33,737	$	1,146	$	415
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts		Prepaid expenses and other current assets	$	165	$	2,224	$	1,895
Total			$	33,902	$	3,370	$	2,310

	Liability Derivatives
	Balance Sheet Classification		Fair Value
			September 30, 2014		September 30, 2013		December 31, 2013
					(In thousands)
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts		Accrued liabilities	$	5,697	$	13,171	$	12,432
Foreign currency forward exchange contracts		Other noncurrent liabilities		395		1,234		470
Total derivatives designated as hedging instruments			$	6,092	$	14,405	$	12,902
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts		Accrued liabilities	$	6,504	$	703	$	1,711
Total			$	12,596	$	15,108	$	14,613

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, 2014					For the Three Months Ended September 30, 2013						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	$	19,745	$	(3,328	)	$	(10,614	)	$	(321	)	Cost of sales

	For the Nine Months Ended September 30, 2014					For the Nine Months Ended September 30, 2013					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	$	15,437	$	(8,925	)	$	(3,348	)	$	482	Cost of sales

The net losses of $3.3 million and $8.9 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three and nine months ended September 30, 2014, respectively, and the net loss of $0.3 million and net gain of $0.5 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three and nine months ended September 30, 2013, 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, 2014			For the Three Months Ended September 30, 2013
	(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts	$	(26,632	)	$	27,911		Non-operating income/expense
Foreign currency forward exchange contracts		292			(3,775	)	Cost of sales
Total	$	(26,340	)	$	24,136

	Amount of Gain (Loss) Recognized in the Statements of Operations						Statements of Operations Classification
	For the Nine Months Ended September 30, 2014			For the Nine Months Ended September 30, 2013
	(In thousands)
Derivatives not designated as hedging instruments
Foreign currency forward exchange contracts	$	(16,863	)	$	10,590		Non-operating income/expense
Foreign currency forward exchange contracts		978			(3,744	)	Cost of sales
Total	$	(15,885	)	$	6,846

The net losses of $26.3 million and $15.9 million recognized in the consolidated statements of operations for the three and nine months ended September 30, 2014, respectively, and the net gains of $24.1 million and $6.8 million recognized in the consolidated statements of operations for the three and nine months ended September 30, 2013, respectively, are offset by foreign currency transaction gains and losses on the related hedged balances.