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Derivative Instruments
 9 Months Ended
Sep. 30, 2015
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 and a cross currency swap contract to hedge intercompany loans and advances denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel has not designated these contracts as hedging instruments, and as such, changes in fair value are recorded in the period of change in the consolidated statements of operations. As of September 30, 2015, September 30, 2014, and December 31, 2014, Mattel held foreign currency forward exchange contracts with notional amounts of approximately $972 million, $1.11 billion, and $1.19 billion, respectively. As of September 30, 2015, Mattel also held a cross currency swap contract with a notional amount of approximately $30 million.

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

 

     Derivative Assets  
     Balance Sheet Classification    Fair Value  
          September 30,
2015		      September 30,
2014		      December 31,
2014		  
                 (In thousands)         

Derivatives designated as hedging instruments:

            

Foreign currency forward exchange contracts

    Prepaid expenses and other

current assets

    $ 21,138       $ 31,908       $ 31,982   

Foreign currency forward exchange contracts

    Other noncurrent assets      1,027         1,829         1,443   
     

 

 

     

 

 

     

 

 

  

Total derivatives designated as hedging instruments

       $ 22,165       $ 33,737       $ 33,425   
     

 

 

     

 

 

     

 

 

  

Derivatives not designated as hedging instruments:

            

Foreign currency forward exchange contracts

    Prepaid expenses and other

current assets

    $ 827       $ 165       $ 318   

Cross currency swap contract

    Prepaid expenses and other

current assets

      5,288         —          —    
     

 

 

     

 

 

     

 

 

  

Total derivatives not designated as hedging instruments

       $ 6,115       $ 165       $ 318   
     

 

 

     

 

 

     

 

 

  

Total

       $ 28,280       $ 33,902       $ 33,743   
     

 

 

     

 

 

     

 

 

  
     Derivative Liabilities  
     Balance Sheet Classification    Fair Value  
          September 30,
2015		      September 30,
2014		      December 31,
2014		  
                 (In thousands)         

Derivatives designated as hedging instruments:

            

Foreign currency forward exchange contracts

    Accrued liabilities    $ 6,773       $ 5,697       $ 2,408   

Foreign currency forward exchange contracts

    Other noncurrent liabilities      672         395         36   
     

 

 

     

 

 

     

 

 

  

Total derivatives designated as hedging instruments

       $ 7,445       $ 6,092       $ 2,444   
     

 

 

     

 

 

     

 

 

  

Derivatives not designated as hedging instruments:

            

Foreign currency forward exchange contracts

    Accrued liabilities    $ 816       $ 6,504       $ 10,954   
     

 

 

     

 

 

     

 

 

  

Total

       $ 8,261       $ 12,596       $ 13,398   
     

 

 

     

 

 

     

 

 

  

 

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, 2015		      For the Three Months Ended
September 30, 2014		     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

    $ 8,866       $ 19,152       $ 19,745       $ (3,328 )      Cost of sales   
  

 

 

     

 

 

     

 

 

     

 

 

    
     For the Nine Months Ended
September 30, 2015		      For the Nine Months Ended
September 30, 2014		     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

    $ 32,367       $ 41,708       $ 15,437       $ (8,925 )      Cost of sales   
  

 

 

     

 

 

     

 

 

     

 

 

    

The net gains of $19.2 million and $41.7 million reclassified from accumulated other comprehensive loss to the consolidated statements of operations for the three and nine months ended September 30, 2015, respectively, and 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, 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, 2015		     For the Three
Months Ended
September 30, 2014		    
     (In thousands)      

Derivatives not designated as hedging instruments

   

Foreign currency forward exchange contracts

    $ (14,711 )    $ (26,632 )    Non-operating income/expense

Cross currency swap contract

      6,085        —        Non-operating income/expense

Foreign currency forward exchange contracts

      896        292      Cost of sales
  

 

 

    

 

 

    

Total

    $ (7,730 )    $ (26,340 )   
  

 

 

    

 

 

    
     Amount of Gain
(Loss) Recognized in the
Statements of Operations		    

Statements of Operations

Classification
     For the Nine
Months Ended
September 30, 2015		     For the Nine
Months Ended
September 30, 2014		    
     (In thousands)      

Derivatives not designated as hedging instruments

   

Foreign currency forward exchange contracts

    $ (55,033 )    $ (16,863 )    Non-operating income/expense

Cross currency swap contract

      5,288        —        Non-operating income/expense

Foreign currency forward exchange contracts

      (3 )      978      Cost of sales
  

 

 

    

 

 

    

Total

    $ (49,748 )    $ (15,885 )   
  

 

 

    

 

 

    

 

The net losses of $7.7 million and $49.7 million recognized in the consolidated statements of operations for the three and nine months ended September 30, 2015, respectively, and 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, are offset by foreign currency transaction gains and losses on the related hedged balances.