Mattel 2006 Annual Report Download - page 52

adjustments to the reserve accrued in 1999 associated with the closure of the Beaverton facility. Costs totaling
approximately $7.0 million have been incurred through December 31, 2006 for the Beaverton property, largely
related to environmental remediation, attorney fees, consulting work and an employee medical screening
program. In January 2003, Mattel entered into a settlement with the ODEQ resolving its cleanup liability in
return for a contribution of $0.4 million to the cleanup, which is being performed by the company that caused the
contamination. The remaining liability of approximately $3.2 million as of December 31, 2006 represents
estimated amounts to be incurred for employee medical screening, project management, and other costs related to
the Beaverton property.
General
Mattel is also involved in various other litigation and legal matters, including claims related to intellectual
property, product liability and labor, as well as environmental matters, 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 2006, 2005 or 2004. The US Consumer
Price Index increased 2.5% in 2006, 3.4% in 2005 and 3.3% in 2004. 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
Mattel sponsors a 401(k) savings plan, the Mattel Personal Investment Plan, for its domestic employees.
Mattel makes employer contributions in cash and allows employees to allocate both their voluntary contributions
and their employer automatic and matching contributions to a variety of investment funds, including a fund that
is fully invested in Mattel common stock (the “Mattel Stock Fund”). Employees are not required to allocate any
funds to the Mattel Stock Fund, which allows employees to limit or eliminate their exposure to market changes in
Mattel’s stock price. Furthermore, Mattel’s plan limits an employee’s maximum allocation to the Mattel Stock
Fund a percentage of the employee’s total account balance, which is currently 25%. Employees may generally
reallocate their account balances on a daily basis. The only limitation on the frequency of reallocations applies to
changes involving the Mattel Stock Fund by employees classified as insiders or restricted personnel under
Mattel’s insider trading policy. Pursuant to Mattel’s insider trading policy, insiders and restricted personnel are
limited to certain periods in which they may make allocations into or out of the Mattel Stock Fund.
Application of Critical Accounting Policies and Estimates
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 and estimates 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 and estimates 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 and estimates 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 Mattel’s significant accounting
policies, estimates, and methods used in the preparation of Mattel’s consolidated financial statements. In most
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