Mattel 2007 Annual Report Download - page 106

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At December 31, 2007, total RSUs vested or expected to vest totaled 3.2 million shares, with a weighted
average grant date fair value of $20.28.
Note 9—Financial Instruments
Marketable Securities
During 2005, Mattel sold marketable securities for proceeds totaling $42.0 million. Gains on sales of these
securities totaling $25.8 million, net of transaction costs, were recorded in other non-operating income, net in the
consolidated statements of operations for 2005.
Derivative Financial Instruments
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Inventory
sale transactions denominated in the Euro, British pound sterling, Canadian dollar, Mexican peso, Hong Kong
dollar and Indonesian rupiah are the primary transactions that caused currency transaction exposure for Mattel
during 2007 and 2006. 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 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. 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. The ineffectiveness related to cash flow hedges was not significant during any year.
Mattel uses fair value derivatives to hedge most intercompany loans and advances 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 the fair value of these derivatives were not significant to the results of operations during
any year.
As of December 31, 2007 and 2006, Mattel held foreign currency forward exchange contracts with notional
amounts totaling $1.07 billion and $1.09 billion, respectively. The notional amounts of these contracts were
equal to the exposure hedged in both years.
The loss on derivative financial instruments, net of tax, reclassified from accumulated other comprehensive
loss to Mattel’s results of operations was $24.1 million, $2.3 million, and $3.9 million during 2007, 2006, and
2005, respectively. As of December 31, 2007, $22.0 million of pre-tax unrealized losses ($20.5 million net of
tax) and December 31, 2006, $6.7 million of pre-tax unrealized gains ($6.5 million net of tax), related to
derivative instruments have been recorded in accumulated other comprehensive loss. Mattel expects to reclassify
the unrealized losses as of December 31, 2007 from accumulated other comprehensive loss to its results of
operations over the life of the contracts, generally within 18 months or less.
Fair Value of Financial Instruments
Mattel’s financial instruments include cash, cash equivalents, marketable securities, investments, accounts
receivable and payable, short-term borrowings, and accrued liabilities. The carrying amount of these instruments
approximates fair value because of their short-term nature.
The estimated fair value of Mattel’s long-term debt, including the current portion, is $613.1 million
(compared to a carrying amount of $600.0 million) as of December 31, 2007 and $714.9 million (compared to a
carrying amount of $700.0 million) as of December 31, 2006. The estimated fair value has been calculated based
on broker quotes or rates for the same or similar instruments.
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