Mattel 2012 Annual Report Download - page 73

carrying value of property, plant, and equipment is reviewed when events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. Any potential impairment identified is assessed by
evaluating the operating performance and future undiscounted cash flows of the underlying assets. When
property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the
consolidated balance sheet and any resulting gain or loss is included in the results of operations.
Goodwill and Intangible Assets
Goodwill is allocated to various reporting units, which are at the operating segment level, for purposes of
evaluating whether goodwill is impaired. As more fully described in “Note 12 to the Consolidated Financial
Statements—Segment Information,” on January 1, 2012, Mattel changed its operating segments to align with its
new organizational structure, which resulted in changes to its reporting units. The new reporting units are: (i) North
America, (ii) International, and (iii) American Girl. Components of the operating segments have been aggregated
into a single reporting unit as the components have similar economic characteristics. The similar economic
characteristics include the nature of the products, the nature of the production processes, the customers, and the
manner in which the products are distributed. Mattel reassigned goodwill to the new reporting units based on a
relative fair value approach. Mattel tests its goodwill for impairment annually in the third quarter and whenever
events or changes in circumstances indicate that the carrying value of the reporting unit may exceed its fair value.
Mattel tests its nonamortizable intangible assets, including trademarks and trade names, for impairment by
comparing the estimated fair values of the nonamortizable intangible assets with the carrying values. Mattel tests
nonamortizable intangible assets for impairment annually in the third quarter or whenever events or changes in
circumstances indicate that the carrying value may exceed its fair value. The fair value of trademark and trade
name intangibles is measured using either a multi-period excess earnings method, which reflects the incremental
after-tax cash flows attributable to the trademark and trade names after deducting the appropriate contributory
asset charges, or a multi-period royalty savings method, which reflects the savings realized by owning the
trademarks and trade names, and thus not having to pay a royalty fee to a third party.
Mattel also tests its amortizable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be recovered.
Foreign Currency Translation Exposure
Mattel’s reporting currency is the US dollar. The translation of its net investments in subsidiaries with non-
US dollar functional currencies subjects Mattel to currency exchange rate fluctuations in its results of operations
and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies are
translated into US dollars at year-end exchange rates. Income, expense, and cash flow items are translated at
weighted average exchange rates prevailing during the year. The resulting currency translation adjustments are
recorded as a component of accumulated other comprehensive loss within stockholders’ equity. Mattel’s primary
currency translation exposures in 2012 were related to its net investments in entities having functional currencies
denominated in the Euro, Mexican peso, Brazilian real, and British pound sterling.
Foreign Currency Transaction Exposure
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Mattel’s
currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged
receivables and payables balances that are denominated in a currency other than the applicable functional
currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating
activities are recorded in the components of operating income in the consolidated statement of operations. Gains
and losses on unhedged intercompany loans and advances are recorded as a component of other non-operating
income/expense, net in the consolidated statements of operations in the period in which the currency exchange
rate changes. Inventory transactions denominated in the Euro, British pound sterling, Mexican peso, Brazilian
real, and Indonesian rupiah were the primary transactions that caused foreign currency transaction exposure for
Mattel in 2012.
61