Mattel 2010 Annual Report Download - page 56

Download and view the complete annual report

Please find page 56 of the 2010 Mattel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

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, and Indonesian rupiah were the primary transactions that caused currency transaction exposure for
Mattel during 2010, 2009, and 2008. 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)
expense, 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 2010 were related to its
net investment in entities having functional currencies denominated in the Euro, British pound sterling, Mexican
peso, Brazilian real, and Chilean peso.
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 US 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.
48