Mattel 2010 Annual Report Download - page 68

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At December 31, 2009, Mattel changed the rate it used 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 per 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 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, 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.
Effective January 1, 2010, Mattel has accounted for Venezuela as a highly inflationary economy as the
three-year cumulative inflation rate for Venezuela, using a blend of the Consumer Price Index 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 uses the US dollar as its
functional currency. As a result of the change to a US dollar functional currency, monetary assets and liabilities
denominated in Venezuelan bolivar fuertes generate income or expense for changes in value associated with
foreign currency exchange rate fluctuations against the US dollar.
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 Venezuelan bolivar fuerte per US dollar
to 2.60 for essential goods and 4.30 for non-essential goods and services. The devaluation did not have a material
impact on Mattel’s consolidated financial statements during 2010. On December 30, 2010, the Venezuelan
government eliminated the 2.60 rate for essential goods. The elimination of the essential goods rate had no
impact on Mattel’s consolidated financial statements during 2010 as Mattel’s products are considered
non-essential goods.
On May 17, 2010, the Venezuelan government enacted reforms to its foreign currency exchange control
regulations (“the exchange control regulations”) to close down the parallel exchange market. On June 9, 2010,
the Venezuelan government enacted additional reforms to its exchange control regulations and introduced a
newly regulated foreign currency exchange system, Sistema de Transacciones con Titulos en Moneda Extranjera
(“SITME”), which is controlled by the Central Bank of Venezuela (“BCV”). Foreign currency exchange
transactions not conducted through CADIVI or SITME may not comply with the exchange control regulations,
and could therefore be considered illegal. The SITME imposes volume restrictions on the conversion of
Venezuelan bolivar fuerte to US dollar, currently limiting such activity to a maximum equivalent of $350
thousand per month. As a result of the enactment of the reforms to the exchange control regulations, Mattel
changed the rate it uses to remeasure Venezuelan bolivar fuerte-denominated transactions from the parallel
exchange rate to the SITME rate specified by the BCV, which was quoted at 5.30 Venezuelan bolivar fuertes per
US dollar on December 31, 2010. The net gain resulting from the remeasurement of Venezuelan bolivar fuerte-
denominated transactions to the SITME rate specified by the BCV increased pre-tax income by approximately $4
million during 2010.
Mattel’s Venezuelan subsidiary had approximately $31 million of net monetary assets denominated in
Venezuelan bolivar fuertes as of December 31, 2010. For every $10 million of net monetary assets denominated
in Venezuelan bolivar fuertes, a 1% increase/(decrease) in the foreign currency exchange rate would decrease/
(increase) Mattel’s pre-tax income by approximately $100 thousand. While Mattel’s level of net monetary assets
denominated in Venezuelan bolivar fuertes will vary from one period to another based on operating cycles and
seasonality, Mattel does not expect future remeasurement adjustments to be material to Mattel’s consolidated
financial statements.
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