Mattel 2003 Annual Report Download - page 66

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Revenue Recognition
Revenue is recognized upon shipment or upon receipt of products by the customer, depending on terms,
provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an agreement
exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and
collectibility is reasonably assured. Management assesses the business environment, customers’ financial
condition, historical collection experience, accounts receivable aging and customer disputes to determine whether
collectibility is reasonably assured. If collectibility is not considered reasonably assured at the time of sale,
Mattel does not recognize revenue until collection occurs. Accruals for customer discounts and rebates, and
defective returns are recorded when the related revenue is recognized.
During the fourth quarter of 2003, Mattel changed the way certain close out sales are classified in its
consolidated statement of operations. Close out sales are sales of certain products that are no longer included in
current product lines. These sales were previously classified as a reduction of cost of sales. Commencing October
1, 2003, close out sales are reported as net sales in Mattel’s consolidated statements of operations. This change in
classification has no impact on gross profit, operating income, net income or any element of the consolidated
balance sheets or consolidated statements of cash flows for any date or period presented. For the first three
quarters of 2003, and for the years ended 2002 and 2001, close out sales are classified as a reduction of cost of
sales and were $38.1 million, $112.7 million and $163.4 million, respectively. Mattel does not believe that these
amounts are material, and therefore has not revised previously reported net sales and cost of sales amounts for
these periods.
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 mailing costs that are generally amortized within three
months from the date the catalogs are mailed.
In the first quarter of 2002, Mattel implemented Emerging Issues Task Force (“EITF”) Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer.Net sales, gross profit, and advertising and
promotion expenses have been restated in the consolidated statement of operations for 2001 to reflect the
reclassification of sales incentives or certain consideration offered by Mattel to its customers as a result of
implementing this EITF Issue.
Research and Development Costs
Research and development costs are charged to the results of operations when incurred.
Stock-Based Compensation
Mattel applies the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees,and related interpretations in accounting for its stock compensation plans. 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.
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