Mattel 2008 Annual Report Download - page 65

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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.
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.
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 in 2008 were 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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