Mattel 2009 Annual Report Download - page 62

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dollar through December 31, 2009. For US dollar needs exceeding conversions obtained through CADIVI, the
parallel exchange market, with rates substantially less favorable than the official exchange rate, may be used to
obtain US dollars without approval from CADIVI.
Effective December 31, 2009, Mattel changed the rate it uses to translate its Venezuelan subsidiary’s
transactions and balances from the official exchange rate to the parallel exchange rate, which was quoted at 5.97
Venezuelan bolivar fuertes to the US dollar on December 31, 2009. The resulting foreign currency translation
adjustment of approximately $15 million increased accumulated other comprehensive loss within stockholders’
equity as of December 31, 2009. Mattel’s considerations for changing the rate included recent indications that the
Venezuelan government is not likely to continue to provide substantial currency exchange at the official rate for
companies importing discretionary products, such as toys, recent difficulties in obtaining approval for the
conversion of local currency to US dollars at the official exchange rate (for imported products and dividends),
delays in previously obtained approvals being honored by CADIVI, and Mattel’s 2009 repatriation of dividends
from its Venezuelan subsidiary at the parallel exchange rate. During 2009, Mattel’s Venezuelan subsidiary
generated approximately $142 million of net sales and approximately $11 million of net income, which was
translated at the official exchange rate. Had Mattel reported results of its Venezuelan operations for 2009 using
the simple average of historical parallel exchange rates during 2009 of 6.13 Venezuelan bolivar fuertes to the US
dollar instead of the official exchange rate, net sales would have been approximately $95 million lower and net
income would have been approximately $7 million lower. Assuming that all else is equal, a 1% increase/
(decrease) in the average historical parallel exchange rate would have further decreased/(increased) Mattel’s
2009 net sales and net income by approximately $500 thousand and $100 thousand, respectively.
Effective January 1, 2010, and as required by US GAAP, Mattel will account for Venezuela as a highly
inflationary economy as the three-year cumulative inflation rate for Venezuela using the blended Consumer Price
Index (which is associated with the city of Caracas) and the National Consumer Price Index (developed
commencing in 2008 and covering the entire country of Venezuela) exceeded 100%. Accordingly, Mattel’s
Venezuelan subsidiary will use the US dollar as its functional currency effective January 1, 2010. As of
December 31, 2009, Mattel’s Venezuelan subsidiary had approximately $20 million of net monetary assets
denominated in bolivar fuertes. As a result of the change to a US dollar functional currency, monetary assets and
liabilities denominated in bolivar fuertes will generate income or expense in 2010 for changes in value associated
with parallel exchange rate fluctuations against the US dollar. For every $10 million of net monetary assets
denominated in bolivar fuertes, a 1% increase/(decrease) in the parallel rate would decrease/(increase) Mattel’s
pre-tax income by approximately $100 thousand. While Mattel’s level of net monetary assets denominated in
bolivar fuertes will vary from one period to another based on operating cycles and seasonality, Mattel does not
expect the remeasurement adjustments to be material to Mattel’s consolidated financial statements.
On January 11, 2010, the Venezuelan government devalued the Venezuelan bolivar fuerte and changed to a
two-tier exchange structure. The official exchange rate moved from 2.15 bolivar fuerte per US dollar to 2.60 for
essential goods and 4.30 for non-essential goods and services, with Mattel’s products falling into the
non-essential category. Due to the limited approvals obtained in 2009 for conversion of local currency to US
dollars at the official exchange rate, this devaluation did not have a material impact on Mattel’s consolidated
financial statements during 2009, and is not expected to materially impact Mattel’s 2010 consolidated financial
statements. For any US dollars that Mattel obtains at the official rate, the benefits associated with the favorable
exchange rate will be reflected within cost of sales.
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