Mattel 2003 Annual Report Download - page 56

anti-takeover provisions in its by-laws that may make it more difficult for a third party to acquire Mattel without
its consent, which may adversely affect Mattel’s stock price.
If any of the risks and uncertainties described in the cautionary factors listed above actually occurs, Mattel’s
business, financial condition and results of operations could be materially and adversely affected. The factors
listed above are not exhaustive. Other sections of this Annual Report on Form 10-K include additional factors
that could materially and adversely impact Mattel’s business, financial condition and results of operations.
Moreover, Mattel operates in a very competitive and rapidly changing environment. New factors emerge from
time to time and it is not possible for management to predict the impact of all such factors on Mattel’s business,
financial condition or results of operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results.
Any or all of the forward-looking statements contained in this Annual Report on Form 10-K and any other public
statement made by Mattel or its representatives may turn out to be wrong. Mattel expressly disclaims any
obligation to update or revise any forward-looking statements, whether as a result of new developments or
otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Risk Management
Foreign currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows.
Inventory purchase transactions denominated in the Euro, British pound sterling, Mexican peso, Hong Kong
dollar and Indonesian rupiah are the primary transactions that cause foreign currency transaction exposure for
Mattel. Mattel seeks to mitigate its exposure to market risk by monitoring its foreign currency transaction
exposure for the year and partially or fully hedging such exposure using foreign currency forward exchange and
option contracts. Such contracts are primarily used to hedge Mattel’s purchase and sale of inventory, and other
intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of
up to 18 months. The majority of all intercompany receivables and payables denominated in foreign currencies
are hedged. For those intercompany receivables and payables that are not hedged, the transaction gains or losses
are recorded in the consolidated statement of operations in the period in which the exchange rate changes as part
of operating income or other non-operating (income) expense, net based on the nature of the underlying
transaction. In addition, Mattel manages its exposure through the selection of currencies used for international
borrowings. Mattel does not trade in financial instruments for speculative purposes.
Mattel’s financial position is also impacted by currency exchange rate fluctuations on translation of its net
investment in foreign subsidiaries. Assets and liabilities of foreign subsidiaries are translated into US dollars at
fiscal year-end exchange rates. Income, expense and cash flow items are translated at weighted average exchange
rates prevailing during the fiscal year. The resulting currency translation adjustments are recorded as a
component of accumulated other comprehensive loss within stockholders’ equity. Mattel’s primary foreign
currency translation exposures are on its net investment in entities having functional currencies denominated in
the Euro, British pound sterling, Mexican peso and Indonesian rupiah.
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