Mattel 2003 Annual Report Download - page 69

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Mattel uses fair value derivatives to hedge most intercompany loans and management fees denominated in
foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting
for these contracts. Changes in fair value of these derivatives were not significant to the results of operations
during any year.
As a result of adopting SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
Mattel recorded a transition adjustment of $12.0 million, net of tax, (or $0.03 per share) as the cumulative effect
of change in accounting principles in 2001 related to unrealized holding losses on the CyberPatrol securities that
had been previously deferred in accumulated other comprehensive income (loss). Mattel also recorded a
transition adjustment of $2.1 million in accumulated other comprehensive income (loss) related to unrealized
gains on derivative instruments during 2001.
New Accounting Pronouncements
In November 2002, the FASB issued FASB Interpretation No. (“FIN”) 45, Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.FIN 45
requires that upon the issuance of a guarantee, the entity (i.e., the guarantor) must recognize a liability, at the
inception of the guarantee, for the fair value of the obligation it assumes under that guarantee and also requires
more detailed disclosures with respect to guarantees. FIN 45 is effective for guarantees issued or modified after
December 31, 2002 and requires additional disclosures for existing guarantees. The adoption of FIN 45 did not
have an impact on Mattel’s results of operations or financial position.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities,which addresses the
consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a
majority voting interest) of consolidation does not apply. The interpretation focuses on financial interests that
indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure
(variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and
activities are the best evidence of control. Variable interests are rights and obligations that convey economic
gains or losses from changes in the values of the variable interest entity’s assets and liabilities. Variable interests
may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If
an enterprise holds a majority of the variable interests of an entity, it would be considered the primary
beneficiary. The primary beneficiary would be required to include the assets, liabilities and the results of
operations of the variable interest entity in its financial statements. In December 2003, the FASB issued a
revision to FIN 46 to address certain implementation issues. The adoption of FIN 46 and FIN 46 (revised) did not
have an impact on Mattel’s results of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133.
SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The guidance should be applied prospectively. The adoption of
SFAS No. 149 did not have an impact on Mattel’s results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. This statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150
requires certain financial instruments that embody obligations of the issuer and have characteristics of both
liabilities and equity to be classified as liabilities. SFAS No. 150 is effective for all financial instruments created
or modified after May 31, 2003, and to other instruments at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial instruments of non-public entities. The adoption
of SFAS No. 150 did not have an impact on Mattel’s results of operation or financial position.
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