Mattel 2005 Annual Report Download - page 58

in foreign currencies. These contracts generally have maturity dates of up to 18 months. 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), net based on the nature of the underlying transaction. Transaction gains or losses on
intercompany inventory transactions are recorded in the consolidated statement of operations in the period in
which the inventory is sold to customers. In addition, Mattel manages its exposure to currency exchange rate
fluctuations 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 subsidiaries with non-US dollar functional currencies. Assets and liabilities of subsidiaries with
non-US dollar functional currencies 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 currency translation exposures during 2005 were related to its
net investment in entities having functional currencies denominated in the Euro, British pound sterling and
Mexican peso.
Mattel’s foreign currency forward exchange contracts that were used to hedge firm foreign currency
commitments as of December 31, 2005 are shown in the following table. All contracts are against the US dollar
and are maintained by reporting units with a US dollar functional currency, with the exception of the Indonesian
rupiah, Thai baht and Chilean peso contracts that are maintained by entities with either a rupiah, baht or Chilean
peso functional currency.
Buy Sell
Contract
Amount
Weighted
Average
Contract
Rate
Fair
Value
Contract
Amount
Weighted
Average
Contract
Rate
Fair
Value
(In thousands of US dollars)
Euro* ............................... $206,229 1.18 $206,530 $187,058 1.23 $181,073
Canadian dollar* ...................... — — — 73,765 0.85 75,196
British pound sterling* ................. — — — 35,922 1.73 35,830
Japanese yen ......................... 1,640 116.51 1,625 4,436 117.30 4,420
Australian dollar* ..................... 34,752 0.72 35,174 4,471 0.76 4,315
Swiss franc .......................... 14,033 1.32 14,065 — — —
Mexican peso ........................ 73,949 10.76 74,676 7,383 10.79 7,414
Indonesian rupiah ..................... 40,786 9,951 40,174 — — —
New Zealand dollar* ................... 5,974 0.67 6,085 — — —
Chilean peso ......................... — — — 5,120 526.19 5,242
Taiwanese dollar ...................... — — — 9,111 33.31 9,274
Singapore dollar ...................... — — — 1,386 1.66 1,388
Thai baht ............................ 5,576 41.14 5,576 — — —
$382,939 $383,905 $328,652 $324,152
*The weighted average contract rate for these contracts is quoted in US dollar per local currency.
For the purchase of foreign currencies, fair value reflects the amount, based on dealer quotes, that Mattel
would pay at maturity for contracts involving the same currencies and maturity dates, if they had been entered into
as of December 31, 2005. For the sale of foreign currencies, fair value reflects the amount, based on dealer quotes,
that Mattel would receive at maturity for contracts involving the same currencies and maturity dates, if they had
been entered into as of December 31, 2005. The differences between the fair value and the contract amounts are
expected to be fully offset by currency transaction gains and losses on the underlying hedged transactions.
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