Mattel 2002 Annual Report Download - page 43

General
Mattel is also involved in various other litigation and legal matters, including claims related to intellectual
property, product liability and labor, which Mattel is addressing or defending in the ordinary course of business.
Management believes that any liability that may potentially result upon resolution of such matters will not have a
material adverse effect on Mattel’s business, financial condition or results of operations.
Effects of Inflation
Inflation rates in the US and in major foreign countries where Mattel does business have not had a
significant impact on its results of operations or financial position during the three years ended December 31,
2002. The US Consumer Price Index increased 2.4% in 2002, 1.6% in 2001 and 3.4% in 2000. Mattel receives
some protection from the impact of inflation from high turnover of inventories and its ability under certain
circumstances at certain times to pass on higher prices to its customers.
Employee Savings Plan
Certain employee savings plan design provisions used by other companies can result in requirements to hold
substantial portions of a participant’s account balance in the stock of the sponsoring company, significantly
increasing the exposure of the account to market risk associated with a single company’s stock. However, the
Mattel Personal Investment Plan is designed to allow participants to limit their exposure to market changes in
Mattel’s stock price. Mattel makes company contributions in cash and allows employees to allocate both
individual and company contributions to a balanced variety of investment funds. Furthermore, Mattel’s plan
limits a participant’s allocation to the Mattel Stock Fund, which is fully invested in Mattel stock, to 50% of the
account balance. Participants may generally reallocate their account balances on a daily basis. This reallocation is
only limited for participants classified as insiders who wish to change their investment in the Mattel Stock Fund.
Insiders are limited to certain window periods for making allocations into or out of the Mattel Stock Fund.
Application of Critical Accounting Policies
Mattel makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses. The accounting policies described below are those Mattel
considers most critical in preparing its consolidated financial statements. Management has discussed the
development and selection of each of these critical accounting policies with its audit committee of the board of
directors and the audit committee has reviewed each of the disclosures included below. These policies include
significant judgment made by management using information available at the time the estimates are made. As
described below, however, these estimates could change materially if different information or assumptions were
used.
Accounts Receivable—Allowance for Doubtful Accounts
The allowance for doubtful accounts represents adjustments to customer trade accounts receivable for
amounts deemed partially or entirely uncollectible. Management believes the accounting estimate related to the
allowance for doubtful accounts is a “critical accounting estimate” because significant changes in it could
materially affect key financial measures including, other selling and administrative expenses, net income and
accounts receivable. In addition, the allowance requires a high degree of judgment since it involves estimation of
the impact of both current and future economic factors as it relates to each of its customers’ ability to pay
amounts owed Mattel.
Products within the Domestic segment are sold directly to large retailers, including discount and free-
standing toy stores, chain stores, department stores, other retail outlets and, to a limited extent, wholesalers.
Products within the International segment are sold directly to customers in Canada and most European, Asian and
Latin American countries, and through agents and distributors in those countries where Mattel has no direct
34