Mattel 2008 Annual Report Download - page 55

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Rate Risk
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Inventory
purchase transactions denominated in the Euro, British pound sterling, Canadian dollar, Mexican peso, Hong
Kong dollar, Indonesian rupiah, and Venezuela bolivar fuerte were the primary transactions that caused currency
transaction exposure for Mattel during 2008, 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 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 along with US dollar cash
balances held by certain international subsidiaries, 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
hedged 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 2008 were related to its
net investment in entities having functional currencies denominated in the Euro, Mexican peso, Indonesian
rupiah, British pound sterling, and Brazilian real.
There are numerous factors impacting the amount by which Mattel’s financial results are affected by foreign
currency translation and transaction gains and losses resulting from changes in currency exchange rates,
including but not limited to the level of foreign currency forward exchange contracts in place at a given time and
the volume of foreign currency denominated transactions in a given period. However, assuming that such factors
were held constant, Mattel estimates that a 1 percent change in the U.S. dollar Trade-Weighted Index would
impact Mattel’s net sales by approximately 0.5% and its full year earnings per share by approximately $0.01 to
$0.02.
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