Mattel 2014 Annual Report Download - page 72

Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The
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. Mattel’s 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 tests its goodwill for impairment annually in the third quarter and whenever events or changes
in circumstances indicate that the carrying value of a 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.
Mattel also tests its amortizable intangible assets, which are primarily comprised of trademarks and trade
names, 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 the impact of 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 2014 were related to its net investments in entities having
functional currencies denominated in the Euro, Mexican peso, British pound sterling, Russian ruble, and
Brazilian real.
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 statement 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 2014.
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