Mattel 2002 Annual Report Download - page 61

generation, financing availability and liquidity status of each customer. Each customer is reviewed at least
annually, with more frequent reviews being performed if necessary based on the customer’s 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 transactions to ensure collectibility of accounts receivable of customers deemed to be a credit risk,
including requiring letters of credit, factoring or purchasing various forms of credit insurance with unrelated third
parties or requiring cash on delivery.
Mattel records an allowance for doubtful accounts at the time revenue is recognized based on management’s
assessment of the business environment, customers’ financial condition, historical collection experience,
accounts receivable aging and customer disputes. When a significant event occurs, such as a bankruptcy filing of
a customer, the allowance is reviewed for adequacy and adjusted to reflect the change in estimated receivable
impairment.
Inventories
Inventories, net of an allowance for excess quantities and obsolescence, are stated at the lower of cost or
market. 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 40 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 amortized using the straight-line method over 3 years.
Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The
carrying value of fixed assets is periodically reviewed to identify and assess any impairment 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 gain or loss on the transaction is included in the results of operations.
Goodwill and Other Intangible Assets
Effective on January 1, 2002, Mattel adopted SFAS No. 142, Goodwill and Other Intangible Assets, which
superseded Accounting Principles Board (“APB”) Opinion No. 17, Intangible Assets. In accordance with the
adoption of SFAS No. 142, Mattel ceased amortization of goodwill effective January 1, 2002. Prior to 2002,
substantially all goodwill was amortized over 20 to 40 years.
Goodwill and other intangible assets are allocated to various reporting units, which are either at the
operating segment level or one reporting level below the operating segment. Mattel’s reporting units for purposes
of applying the provisions of SFAS No. 142 are: Pleasant Company, US Girls, US Boys-Entertainment,
US Infant & Preschool and International. Mattel tests its goodwill and other intangible assets for impairment
annually based on a combination of the fair value of the cash flows that the business can be expected to generate
in the future (Income Approach) and the fair value of the business as compared to other similar publicly traded
companies (Market Approach).
Revenue Recognition
Revenue is recognized upon shipment or upon receipt of products by the customer, depending on customer
terms, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an
agreement exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and
collectibility is reasonably assured. Management assesses the business environment, customers’ financial
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