Mattel 2007 Annual Report Download - page 56

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relating to alleged product defects and seek disgorgement of unspecified amounts of profits from such sales. The
derivative plaintiffs have asked for damages in unspecified amounts and equitable relief. In Sterling Heights,
defendants have filed a motion to dismiss, which is not yet fully briefed, and plaintiff has filed a motion for
voluntary dismissal without prejudice in favor of the California state derivative actions. The state and federal
derivative actions in California have been consolidated into one action each in state and federal court, but all are
in the preliminary stage with no responsive pleading yet filed.
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 2007, 2006, or 2005. The US Consumer
Price Index increased 2.8% in 2007, 3.2% in 2006, and 3.4% in 2005. 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, the Mattel Personal Investment Plan limits an employee’s maximum
allocation to the Mattel Stock Fund to 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 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. See Item 8 “Financial Statements and Supplementary Data—Note
1 to the Consolidated Financial Statements—Summary of Significant Accounting Policies.”
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
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