Mattel 2000 Annual Report Download - page 33

thirty one
Notes to Consolidated Financial Statements
Mattel, Inc. and Subsidiaries
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Preparation
The consolidated financial statements include the accounts of Mattel, Inc.
and its subsidiaries (“Mattel”). All significant intercompany accounts and
transactions have been eliminated in consolidation, and certain amounts
in the financial statements for prior years have been reclassified to con-
form to the current year presentation. Investments in joint ventures and
other companies are accounted for by the equity method or cost basis,
depending upon the level of the investment and/or Mattel’s ability to
exercise influence over operating and financial policies.
Financial data for 1997 through 1999 reflect the retroactive
effect of the merger, accounted for as a pooling of interests, with
Learning Company in May 1999. As more fully described in Note 13,
the Consumer Software segment, which was comprised primarily of
Learning Company, was reported as a discontinued operation effective
March 31, 2000, and the consolidated financial statements were
reclassified to segregate the net investment in, and the liabilities and
operating results of the Consumer Software segment.
Preparation of the consolidated financial statements in confor-
mity with generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into US dol-
lars 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 other comprehensive income (loss)
within stockholders’ equity.
Cash and Short-Term Investments
Cash includes cash equivalents, which are highly liquid investments
with maturities of three months or less when purchased.
Marketable Securities
Marketable securities are comprised of investments in publicly-traded
securities, classified as available-for-sale, and are recorded at market
value with unrealized gains or losses reported as a component of other
comprehensive income (loss) within stockholders’ equity until realized.
Inventories
Inventories, net of an allowance for excess quantities and obsoles-
cence, are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depre-
ciation and amortization. Depreciation is computed using the straight-
line method over estimated useful lives of 10 to 40 years for buildings,
3 to 10 years for machinery and equipment, and 10 to 20 years, not to
exceed the lease term, for leasehold improvements. Tools, dies and molds
are amortized using the straight-line method over 3 years.
Intangibles and Long-Lived Assets
Intangible assets consist of the excess of purchase price over the fair
value of net assets acquired in purchase acquisitions, and the cost of
acquired patents and trademarks. Intangible assets are amortized
using the straight-line method over periods ranging from 2 to 40 years.
Accumulated amortization was $332.2 million and $280.2 million as
of December 31, 2000 and 1999, respectively.
The carrying value of fixed and intangible assets is periodically
reviewed to identify and assess any impairment by evaluating the
operating performance and future undiscounted cash flows of the
underlying assets.
Revenue Recognition
Revenue from the sale of toy products is recognized upon shipment.
Accruals for customer discounts and rebates, and defective returns
are recorded as the related revenues are recognized.
The Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements,
in December 1999. SAB 101 summarizes certain of the SEC staff’s views
in applying generally accepted accounting principles to revenue recog-
nition in financial statements. Mattel has reviewed its revenue recogni-
tion policies and determined that it is in compliance with SAB 101.
Advertising and Promotion Costs
Costs of media advertising are expensed the first time the advertising
takes place, except for direct-response advertising, which is capitalized
and amortized over its expected period of future benefits. Direct-
response advertising consists primarily of catalog production and mail-
ing costs that are generally amortized within three months from the
date catalogs are mailed. Advertising costs associated with customer
benefit programs are accrued as the related revenues are recognized.
Stock-Based Compensation
Mattel has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized
in the results of operations for nonqualified stock options granted
under Mattel’s plans as such options are granted at not less than the
quoted market price of Mattel’s common stock on the date of grant.
Income Taxes
Mattel accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial