Mattel 2008 Annual Report Download - page 67

At the inception of the contracts, Mattel designates its derivatives as either cash flow or fair value hedges
and documents the relationship of the hedge to the underlying transaction, for cash flow hedges, or the
recognized asset or liability, for fair value hedges. Hedge effectiveness is assessed at inception and throughout
the life of the hedge to ensure the hedge qualifies for hedge accounting treatment. Changes in fair value
associated with hedge ineffectiveness, if any, are recorded in the results of operations.
Changes in fair value of Mattel’s cash flow hedge derivatives are deferred and recorded as part of
accumulated other comprehensive loss in stockholders’ equity until the underlying transaction affects earnings.
In the event that an anticipated transaction is no longer likely to occur, Mattel recognizes the change in fair value
of the derivative in its results of operations in the period the determination is made.
Mattel uses fair value derivatives to hedge most intercompany loans and advances denominated in foreign
currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these
contracts.
Revenue Recognition and Sales Adjustments
Revenue is recognized upon shipment or upon receipt of products by the customer, depending on terms,
provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an agreement
exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and
collectibility is reasonably assured. Management assesses the business environment, the customer’s financial
condition, historical collection experience, accounts receivable aging, and customer disputes to determine
whether collectibility is reasonably assured. If collectibility is not considered reasonably assured at the time of
sale, Mattel does not recognize revenue until collection occurs. Mattel routinely enters into arrangements with its
customers to provide sales incentives, support customer promotions, and provide allowances for returns and
defective merchandise. Such programs are based primarily on customer purchases, customer performance of
specified promotional activities, and other specified factors such as sales to consumers. The costs of these
programs are recorded as sales adjustments that reduce gross revenue in the period the related revenue is
recognized.
Advertising and Promotion Costs
Costs of media advertising are expensed the first time the advertising takes place, except for direct-response
advertising, which is capitalized and amortized over its expected period of future benefits. Direct-response
advertising consists primarily of catalog production and mailing costs that are generally amortized within three
months from the date the catalogs are mailed.
Product Recalls and Withdrawals
Mattel establishes a reserve for product recalls and withdrawals on a product-specific basis when
circumstances giving rise to the recall or withdrawal become known. Facts and circumstances related to the recall
or withdrawal, including where the product affected by the recall or withdrawal is located (e.g., with consumers,
in customers’ inventory, or in Mattel’s inventory), cost estimates for shipping and handling for returns, whether
the product is repairable, cost estimates for communicating the recall or withdrawal to consumers and customers,
and cost estimates for parts and labor if the recalled or withdrawn product is deemed to be repairable, are
considered when establishing a product recall or withdrawal reserve. These factors are updated and reevaluated
each period and the related reserves are adjusted when these factors indicate that the recall or withdrawal reserve
is either not sufficient to cover or exceeds the estimated product recall or withdrawal expenses (see “Note 5 to
the Consolidated Financial Statements—Product Recalls and Withdrawals”).
Design and Development Costs
Product design and development costs are charged to the results of operations as incurred.
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