Mattel 2009 Annual Report Download - page 72

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and cost estimates for parts and labor if the recalled or withdrawn product is deemed to be repairable, are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 4 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.
Employee Benefit Plans
Mattel and certain of its subsidiaries have retirement and other postretirement benefit plans covering
substantially all employees of these companies. Actuarial valuations are used in determining amounts recognized
in the financial statements for retirement and other postretirement benefit plans (see “Note 7 to the Consolidated
Financial Statements—Employee Benefit Plans”).
Share-Based Payments
Mattel recognizes the cost of employee share-based payment awards on a straight-line attribution basis over
the requisite employee service period, net of estimated forfeitures. In determining when additional tax benefits
associated with share-based payment exercises are recognized, Mattel follows the ordering of deductions under
the tax law, which allows deductions for share-based payment exercises to be utilized before previously existing
net operating loss carryforwards. In computing dilutive shares under the treasury stock method, Mattel does not
reduce the tax benefit amount within the calculation for the amount of deferred tax assets that would have been
recognized had Mattel previously expensed all share-based payment awards.
Determining the fair value of share-based awards at the measurement date requires judgment, including
estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility, and
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