Mattel 2003 Annual Report Download - page 45

(the “Mattel Stock Fund”). Employees are not required to allocate any funds to the Mattel Stock Fund, which
allows employees to limit their exposure to market changes in Mattel’s stock price. Furthermore, Mattel’s plan
limits a participant’s allocation to the Mattel Stock Fund to a maximum of 50% of the participant’s total account
balance. Participants may generally reallocate their account balances on a daily basis. This reallocation is only
limited for participants classified as insiders or restricted personnel under Mattel’s insider trading policy that
wish to change their investment in the Mattel Stock Fund. Pursuant to Mattel’s insider trading policy, insiders
and restricted personnel 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 these critical accounting policies with the Audit Committee of its board of
directors, and the Audit Committee has reviewed the disclosures included below. The following is a review of the
accounting policies that include significant judgments 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 instead.
Note 1 to the consolidated financial statements includes a summary of the significant accounting policies
and methods used in the preparation of Mattel’s consolidated financial statements. In most instances, Mattel must
use an accounting policy or method because it is the only policy or method permitted under accounting principles
generally accepted in the United States of America.
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 the
assumptions used to develop the estimate 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 in
relation to its customers’ ability to pay amounts owed to Mattel.
Mattel’s products are sold throughout the world. 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 retailers and
wholesalers in Canada and most European, Asian and Latin American countries, and through agents and
distributors in those countries where Mattel has no direct presence.
On a consolidated basis, a small number of customers account for a large share of Mattel’s net sales and
accounts receivable. For year end 2003, Mattel’s three largest customers, Wal-Mart, Toys “R” Us and Target, in
the aggregate, accounted for approximately 47% of net sales, and its ten largest customers in the aggregate
accounted for approximately 59% of net sales. As of year end 2003, Mattel’s three largest customers accounted
for approximately 42% of net accounts receivable, and its ten largest customers accounted for approximately
57% of net accounts receivable. Within the International segment, there is also a concentration of sales to certain
large customers that do not operate in the US. The customers and the degree of concentration vary depending
upon the region or nation. The concentration of Mattel’s business with a relatively small number of customers
may expose Mattel to a material adverse effect if one or more of Mattel’s large customers were to experience
financial difficulty.
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