Mattel 2001 Annual Report Download - page 52

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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 amortized using the straight-line method over 3 years.
Intangibles and Long-Lived Assets
Intangible assets consist of the excess of purchase price over the fair value of net assets acquired in
purchase acquisitions, and the cost of acquired patents and trademarks. Intangible assets are amortized using
the straight-line method over periods ranging from 2 to 40 years. Substantially all goodwill is amortized over
20 to 40 years. Accumulated amortization was $383.3 million and $332.2 million as of December 31, 2001 and
2000, respectively.
The carrying value of fixed and intangible assets is periodically reviewed to identify and assess any
impairment by evaluating the operating performance and future undiscounted cash flows of the underlying
assets.
In July 2001, the Financial Accounting Standards Boards (‘‘FASB’’) issued Statement of Financial
Accounting Standards (‘‘SFAS’’) No. 141, Business Combinations, which supercedes Accounting Principles
Board Opinion (‘‘APB’’) No. 16, Business Combinations. This statement requires that all business
combinations be accounted for by the purchase method and establishes specific criteria for the recognition of
intangible assets separately from goodwill. The statement also requires unallocated negative goodwill to be
written off immediately as an extraordinary gain. The provisions of the statement apply to business
combinations initiated after June 30, 2001. For business combinations accounted for using the purchase method
before July 1, 2001, the provisions of this statement will be effective in the first quarter of 2002.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supercedes
APB Opinion No. 17, Intangible Assets. This statement addresses the accounting and reporting of goodwill and
other intangible assets subsequent to their acquisition. The statement also provides specific guidance on testing
goodwill and intangible assets for impairment. SFAS No. 142 provides that (i) goodwill and indefinite-lived
intangible assets will no longer be amortized; (ii) impairment will be measured using various valuation
techniques based on discounted cash flow; (iii) goodwill will be tested for impairment at least annually at the
reporting unit level; (iv) intangible assets deemed to have an indefinite life will be tested for impairment at
least annually; and (v) intangible assets with finite lives will be amortized over their useful lives. Goodwill and
intangible assets acquired after June 30, 2001 are subject to the provisions of this statement. All provisions of
this statement will become effective in the first quarter of 2002. Mattel’s goodwill amortization was
approximately $46 million of the total $51.1 million in amortization of intangibles recorded in 2001. Mattel is
in the process of evaluating the potential impact that the adoption of SFAS No. 142 will have on its
consolidated financial position and results of operations. Based on preliminary results of its valuation study,
Mattel anticipates that the total impairment to be recognized as a result of the transitional goodwill impairment
test will be approximately $400 million pre-tax, relating entirely to the Pleasant Company reporting unit.
Revenue Recognition
Revenue from the sale of toy products is recognized upon shipment or upon receipt of products by the
customer, depending on customer terms. Accruals for customer discounts and rebates, and defective returns are
recorded as the related revenues are recognized.
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 catalogs are mailed. Advertising costs associated with customer benefit
programs are accrued as the related revenues are recognized.
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