Mattel 2012 Annual Report Download - page 72

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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 wholly and majority-owned subsidiaries are consolidated and included in Mattel’s consolidated financial
statements. 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.
Use of Estimates
Preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”) 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.
Cash and Equivalents
Cash and equivalents include short-term investments, which are highly liquid investments with maturities of
three months or less when purchased. Such investments are stated at cost, which approximates market value.
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
generation, financing availability, and liquidity status of each customer. Customers are reviewed at least
annually, with more frequent reviews performed as necessary, based on the customers’ financial condition and
the level of credit being extended. For customers who are experiencing financial difficulties, management
performs additional financial analyses before shipping to those customers on credit. Mattel uses a variety of
financial arrangements to ensure collectibility of accounts receivable of customers deemed to be a credit risk,
including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties,
factoring, or requiring cash in advance of shipment.
Mattel records an allowance for doubtful accounts based on management’s assessment of the business
environment, customers’ financial condition, historical collection experience, accounts receivable aging, and
customer disputes.
Inventories
Inventories, net of an allowance for excess quantities and obsolescence, are stated at the lower of cost or
market. Inventory allowances are charged to cost of sales and establish a lower cost basis for the inventory. Cost
is determined by the first-in, first-out method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over estimated useful lives of 10 to 30 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 depreciated using the straight-line method over 3 years.
Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The
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