Mattel 2011 Annual Report Download - page 71

Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The
carrying value of property, plant, and equipment is reviewed when events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. Any potential impairment identified is assessed by
evaluating the operating performance and future undiscounted cash flows of the underlying assets. When
property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the
consolidated balance sheet and any resulting gain or loss is included in the results of operations.
Goodwill and Intangible Assets
Goodwill is allocated to various reporting units, which are either at the operating segment level or one
reporting level below the operating segment, for purposes of evaluating whether goodwill is impaired. Mattel’s
reporting units are: Mattel Girls Brands US, Mattel Boys Brands US, Fisher-Price Brands US,
American Girl Brands, and International. Mattel tests goodwill for impairment annually in the third quarter, or
whenever events or changes in circumstances indicate that the carrying value may exceed its fair value.
Mattel tests its nonamortizable intangible assets, including trademarks and trade names, for impairment by
comparing the estimated fair values of the nonamortizable intangible assets with the carrying values. Mattel tests
nonamortizable intangible assets for impairment annually in the third quarter, or whenever events or changes in
circumstances indicate that the carrying value may exceed its fair value. The fair value of trademark and trade
name intangibles is measured using a multi-period royalty savings method, which reflects the savings realized by
owning the trademarks and trade names, and thus not having to pay a royalty fee to a third party.
Mattel also tests its amortizable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be recovered.
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 year-end exchange rates. Income, expense, and cash flow items are translated at
weighted average exchange rates prevailing during the 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 2011 were related to its net investment in entities having functional currencies
denominated in the Euro, Mexican peso, Brazilian real, and British pound sterling.
Foreign Currency Transaction Exposure
Currency exchange rate fluctuations may impact Mattel’s results of operations and cash flows. Mattel’s
currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged
receivables and payables balances that are denominated in a currency other than the applicable functional
currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating
activities are recorded in the components of operating income in the consolidated statement of operations. Gains
and losses on unhedged intercompany loans and advances are recorded as a component of other non-operating
income/expense, net in the consolidated statements of operations in the period in which the currency exchange
rate changes. Inventory transactions denominated in the Euro, British pound sterling, Mexican peso, Brazilian
real, and Indonesian rupiah were the primary transactions that cause foreign currency transaction exposure for
Mattel in 2011.
Derivative Instruments
Mattel uses foreign currency forward exchange contracts as cash flow hedges primarily to hedge its
purchases and sales of inventory denominated in foreign currencies. At the inception of the contracts, Mattel
designates these derivatives as cash flow hedges and documents the relationship of the hedge to the underlying
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