Mattel 2007 Annual Report Download - page 78

MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Preparation
The consolidated financial statements include the accounts of Mattel, Inc. and its subsidiaries (“Mattel”).
All majority-owned subsidiaries are consolidated and included in Mattel’s consolidated financial statements.
Investments in joint ventures and other companies are accounted for by the equity method or cost basis,
depending upon the level of the investment and/or Mattel’s ability to exercise influence over operating and
financial policies. Mattel does not have any minority stock ownership interests in which it has a controlling
financial interest that would require consolidation. All significant intercompany accounts and transactions have
been eliminated in consolidation, and certain amounts in the consolidated financial statements for prior years
have been reclassified to conform to the current year presentation.
Use of Estimates
Preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could
ultimately differ from those estimates.
Foreign Currency Translation Exposure
Mattel’s reporting currency is the US dollar. The translation of its net investment in subsidiaries with
non-US dollar functional currencies subjects Mattel to currency exchange rate fluctuations in its results of
operations and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies
are translated into US dollars at fiscal year-end exchange rates. Income, expense, and cash flow items are
translated at weighted average exchange rates prevailing during the fiscal year. The resulting currency translation
adjustments are recorded as a component of accumulated other comprehensive loss within stockholders’ equity.
Mattel’s primary currency translation exposures are related to its net investment in entities having functional
currencies denominated in the Euro, Mexican peso, Indonesian rupiah, British pound sterling, and Brazilian real.
Cash and Equivalents
Cash and equivalents include short-term investments, which are highly liquid investments with maturities of
three months or less when purchased. Such investments are stated at cost, which approximates market value.
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 performed as 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 based on management’s assessment of the business
environment, customers’ financial condition, historical collection experience, accounts receivable aging, and
customer disputes.
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