Mattel 2006 Annual Report Download - page 78

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FIN 48
In July 2006, the FASB issued Final Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS No. 109. FIN 48 clarifies the accounting for income taxes by prescribing the
minimum recognition threshold an uncertain tax position is required to meet before tax benefits associated with
such uncertain tax positions are recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and
transition. In addition, FIN 48 excludes income taxes from the scope of SFAS No. 5, Accounting for
Contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006. Differences between the
amounts recognized in the consolidated balance sheets prior to the adoption of FIN 48 and the amounts reported
after adoption are accounted for as a cumulative-effect adjustment to the beginning balance of retained earnings
upon adoption of FIN 48. FIN 48 also requires that amounts recognized in the balance sheet related to uncertain
tax positions be classified as a current or noncurrent liability, based upon the timing of the ultimate payment to a
taxing authority. Mattel currently records tax reserves related to uncertain tax positions as a current liability and
upon adoption of FIN 48, will reclassify to noncurrent liabilities those uncertain tax positions for which a cash
tax payment is not expected within the next twelve months. Mattel will adopt FIN 48 as of January 1, 2007 and
does not believe that the adoption of FIN 48 will have a material impact on its results of operations
SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance
for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for
expanded information about the extent to which companies measure assets and liabilities at fair value, the
information used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157
applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The
standard does not expand the use of fair value in any new circumstances. Under SFAS No. 157, fair value refers
to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants in the market in which the reporting entity transacts. SFAS No. 157 clarifies the principle that
fair value should be based on the assumptions market participants would use when pricing the asset or liability
and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair
value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to
unobservable data, for example, the reporting entity’s own data. Fair value measurements would be separately
disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Mattel does not
expect the adoption of SFAS No. 157 to have a material impact on its results of operations and financial position.
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities, which provides companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS No. 159 is to reduce both complexity in accounting for financial instruments
and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also
establishes presentation and disclosure requirements designed to facilitate comparisons between companies that
choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for
Mattel as of January 1, 2008. Mattel has not completed its evaluation of SFAS No. 159 but does not expect the
adoption of SFAS No. 159 to have a material effect on its operating results or financial position.
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