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Fair Value Measurements
 12 Months Ended
Dec. 31, 2013
Fair Value Measurements

Note 10—Fair Value Measurements

The following table presents information about Mattel’s assets and liabilities measured and reported in the financial statements at fair value on a recurring basis as of December 31, 2013 and 2012 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 include the following:

 

     December 31, 2013  
     Level 1      Level 2      Level 3      Total  
     (In thousands)  

Assets:

            

Foreign currency forward exchange contracts (a)

    $  —       $ 2,310       $ —       $ 2,310   

Auction rate security (b)

      —         —         28,895         28,895   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ —       $ 2,310       $ 28,895       $ 31,205   
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Foreign currency forward exchange contracts (a)

    $      —       $   14,613       $ —       $ 14,613   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

     December 31, 2012  
      Level 1      Level 2      Level 3      Total  
     (In thousands)  

Assets:

            

Foreign currency forward exchange contracts (a)

    $         —       $ 3,068       $ —       $ 3,068   

Auction rate security (b)

      —         —         19,256         19,256   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

    $ —       $ 3,068       $ 19,256       $ 22,324   
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Foreign currency forward exchange contracts (a)

    $ —       $ 8,757       $ —       $ 8,757   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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

 

     Level 3  
     (In thousands)  

Balance at December 31, 2010

    $ 21,000   

Unrealized loss

      (5,370 ) 
  

 

 

  

Balance at December 31, 2011

      15,630   

Unrealized gain

      3,626   
  

 

 

  

Balance at December 31, 2012

      19,256   

Unrealized gain

      9,639   
  

 

 

  

Balance at December 31, 2013

    $         28,895   
  

 

 

  

The unrealized gains/losses recognized relating to the auction rate security are reflected within other non-operating income in the consolidated statements of operations.

Non-Recurring Fair Value Measurements

Mattel tests its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable or that the carrying value may exceed its fair value. During the second quarter of 2013, Mattel changed its brand strategy for Polly Pocket, which includes a more focused allocation of resources to support the Polly Pocket brand in specific markets, resulting in a reduction of the forecasted future cash flows of the brand. As a result, Mattel recognized an impairment charge of approximately $14 million, which reduced the value of the intangible asset to approximately $99 million, as more fully described in “Note 2 to the Consolidated Financial Statements—Goodwill and Other Intangibles.”

During 2013, 2012, and 2011, Mattel did not have any other assets or liabilities measured and reported at fair value on a non-recurring basis in periods subsequent to initial recognition.

Other Financial Instruments

Mattel’s financial instruments include cash and equivalents, accounts receivable and payable, short-term borrowings, and accrued liabilities. The carrying value 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 $1.62 billion (compared to a carrying value of $1.60 billion) as of December 31, 2013 and $1.63 billion (compared to a carrying value of $1.50 billion) as of December 31, 2012. 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.