Mattel 2004 Annual Report Download - page 68

Accounts Receivable and Allowance for Doubtful Accounts
Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based
on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash
generation, financing availability and liquidity status of each customer. Customers are 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
arrangements 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 in advance of shipment.
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 circumstances arise or a significant event occurs that
comes to the attention of management, such as a bankruptcy filing of a customer, the allowance is reviewed for
adequacy and adjusted to reflect the change in the estimated amount to be received from the customer.
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 reviewed when events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. Any 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 gain or loss on the transaction is included in the results of operations.
Goodwill
On January 1, 2002, Mattel adopted Statement of Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible Assets, which superseded Accounting Principles Board (“APB”) Opinion No. 17,
Intangible Assets, and ceased amortizing goodwill.
Goodwill is 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: Mattel Brands US Girls division, Mattel Brands US Boys division, Fisher-Price Brands US,
American Girl Brands and International. Mattel tests its goodwill for impairment annually, or whenever events or
changes in circumstances indicate that the carrying value may not be recoverable, based on the fair value of the
cash flows that the business can be expected to generate in the future (Income Approach).
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
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