Mattel 2002 Annual Report Download - page 60

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MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 majority-owned subsidiaries are consolidated and included in Mattel’s consolidated financial statements.
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. Mattel does not have any minority stock ownership interests in which it has a controlling
financial interest that would require consolidation. 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 conform to the current year presentation.
Financial data for 1999 reflects 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 14, 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 conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could ultimately differ from those
estimates.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries 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 income (loss) within stockholders’ equity.
Gains and losses from unhedged foreign currency transactions include gains and losses realized on
unhedged inventory purchases and from intercompany receivables and payables balances that are denominated in
a currency other than the applicable functional currency. Gains and losses realized on unhedged inventory
purchases are recognized as a component of cost of sales. Gains and losses on unhedged intercompany
receivables and payables balances are recognized as a component of other non-operating expense, net in the
period in which the exchange rate changes.
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, net of tax, reported as a component of
accumulated other comprehensive income (loss) within stockholders’ equity until realized.
Accounts Receivable and Allowance for Doubtful Accounts
Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based
on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash
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