Mattel 2015 Annual Report Download - page 85

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(b) The fair value of the auction rate security was 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.
During 2015, Mattel sold its auction rate security and received proceeds of $32.3 million, resulting in a gain of $1.3
million for the year ended December 31, 2015. The following table presents information about Mattel's investments measured
and reported at fair value on a recurring basis using significant Level 3 inputs:
Level 3
(In thousands)
Balance at December 31, 2012 $ 19,256
Unrealized gain 9,639
Balance at December 31, 2013 $ 28,895
Unrealized gain 2,065
Balance at December 31, 2014 $ 30,960
Proceeds from sale (32,250)
Gain on sale 1,290
Balance at December 31, 2015 $—
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 2015, 2014, and 2013, 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 approximate their fair value because of their short-term nature and
are classified as Level 2 within the fair value hierarchy.
The estimated fair value of Mattel’s long-term debt, including the current portion, was $2.15 billion (compared to a
carrying value of $2.10 billion) as of December 31, 2015 and $2.18 billion (compared to a carrying value of $2.10 billion) as of
December 31, 2014. 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.
Note 11—Commitments and Contingencies
Leases
Mattel routinely enters into noncancelable lease agreements for premises and equipment used in the normal course of
business. Certain of these leases include escalation clauses that adjust rental expense to reflect changes in price indices, as well
as renewal options. In addition to minimum rental payments, certain of Mattel’s leases require additional payments to
reimburse the lessors for operating expenses such as real estate taxes, maintenance, utilities, and insurance. Rental expense is
recorded on a straight-line basis, including escalating minimum payments. The American Girl Place leases in Chicago, Illinois,
Los Angeles, California, and New York, New York, and American Girl store leases in Alpharetta, Georgia, Bloomington,
Minnesota, Charlotte, North Carolina, Chesterfield, Missouri, Columbus, Ohio, Dallas, Texas, Houston, Texas, Lone Tree,
Colorado, Lynnwood, Washington, McLean, Virginia, Miami, Florida, Nashville, Tennessee, Natick, Massachusetts, Orlando,
Florida, Overland Park, Kansas, Palo Alto, California, and Scottsdale, Arizona also contain provisions for additional rental
payments based on a percentage of the sales of each store after reaching certain sales benchmarks. Contingent rental expense is
recorded in the period in which the contingent event becomes probable. During 2015, 2014, and 2013, contingent rental