Mattel 2006 Annual Report Download - page 63

Kong dollar and Indonesian rupiah were the primary transactions that caused currency transaction exposure for
Mattel during 2006, 2005, and 2004. Mattel seeks to mitigate its exposure to market risk by monitoring its
currency transaction exposure for the year and partially hedging such exposure using foreign currency forward
exchange and option contracts primarily to hedge its purchase and sale of inventory, and other intercompany
transactions denominated 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 2006 were related to its
net investment in entities having functional currencies denominated in the Euro, British pound sterling,
Indonesian rupiah and Mexican peso.
Mattel’s foreign currency forward exchange contracts that were used to hedge firm foreign currency
commitments as of December 31, 2006 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 and Malaysian ringgit contracts that are maintained by entities with either a rupiah or ringgit 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* ............................... $368,678 1.31 $371,170 $342,441 1.30 $349,284
Canadian dollar* ...................... — — — 37,350 0.89 36,163
British pound sterling* ................. — — — 58,134 1.95 58,273
Japanese yen ......................... 3,261 117.69 3,229 6,923 119.09 6,924
Australian dollar* ..................... 17,208 0.78 17,353 27,480 0.76 28,199
Swiss franc .......................... 17,421 1.22 17,449 — — —
Mexican peso ........................ 58,997 10.89 59,581 12,614 11.00 12,641
Indonesian rupiah ..................... 45,245 9,438 46,799 — — —
New Zealand dollar* ................... 6,307 0.70 6,345 1,889 0.67 1,963
Czech koruna ......................... — — — 771 21.20 787
Taiwan dollar ........................ — — — 9,305 32.74 9,369
Singapore dollar ...................... — — — 1,690 1.54 1,701
Hungarian forint ...................... — — — 699 194.67 717
Polish zloty .......................... — — — 4,707 2.91 4,730
New Turkish lira ...................... — — — 1,581 1.43 1,604
Malaysian ringgit ..................... 8,294 3.62 8,567 — — —
$525,411 $530,493 $505,584 $512,355
*The weighted average contract rate for these contracts is quoted in US dollar per local currency.
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