Mattel 2000 Annual Report Download - page 35

thirty three
Mattel, Inc. and Subsidiaries
Deferred income taxes are provided principally for net operating
loss carryforwards, certain reserves, depreciation, employee
compensation-related expenses, and certain other expenses that are
recognized in different years for financial statement and income tax
purposes. Mattel’s deferred income tax assets (liabilities) are
comprised of the following (in thousands):
As of Year End
2000 1999
Operating loss and tax credit carryforwards $ 797,216 $ 192,162
Sales allowances and inventory reserves 75,785 66,854
Deferred compensation 45,371 39,476
Restructuring and other charges 27,210 54,942
Excess of tax basis over book basis 21,841 18,856
Postretirement benefits 12,440 12,790
Other 31,640 48,371
Gross deferred income tax assets 1,011,503 433,451
Deferred intangible assets (40,374) (31,691)
Retirement benefits (20,872) (19,933)
Excess of book basis over tax basis (3,320) (4,449)
Other (38,637) (26,042)
Gross deferred income tax liabilities (103,203) (82,115)
Deferred income tax asset valuation allowances (364,004) (138,400)
Net deferred income tax assets $ 544,296 $ 212,936
Management considered all available evidence and determined
that a valuation allowance of $364.0 million was required as of
December 31, 2000 for certain tax credit, net operating loss, and capi-
tal loss carryforwards that would likely expire prior to their utilization.
However, management feels it is more likely than not that Mattel will
generate sufficient taxable income in the appropriate carryforward
periods to realize the benefit of the remaining net deferred tax assets
of $544.3 million.
Differences between the provision for income taxes for contin-
uing operations at the US federal statutory income tax rate and the
provision in the consolidated statements of operations are as follows
(in thousands):
For the Year
2000 1999 1998
Provision at federal statutory rates $ 78,898 $ 59,557 $160,806
Increase (decrease) resulting from:
Losses without income tax benefit 12,777 21,170 1,821
Foreign earnings taxed at different
rates, including withholding taxes (37,167) (62,488) (44,301)
State and local taxes, net of federal benefit (6,435) 6,165 2,665
Non-deductible amortization and
restructuring charges 2,093 25,986 -
Other 5,081 11,387 10,202
Total provision for income taxes $ 55,247 $ 61,777 $131,193
Appropriate US and foreign income taxes have been provided
for earnings of foreign subsidiary companies that are expected to be
remitted in the near future. The cumulative amount of undistributed
earnings of foreign subsidiaries that Mattel intends to permanently
invest and upon which no deferred US income taxes have been pro-
vided is $1.6 billion at December 31, 2000. The additional US income
tax on the unremitted foreign earnings, if repatriated, would be offset
in whole or in part by foreign tax credits.
As of December 31, 2000, Mattel has US net operating loss carry-
forwards totaling $1.1 billion and credit carryforwards of $117.9 million
for federal income tax purposes. The net operating loss carryforwards
expire during the years 2001 to 2020, while $113.7 million of the tax
credits expire during the years 2001 to 2011, with the remainder having
no expiration date. Utilization of these loss and credit carryforwards is
subject to annual limitations, and Mattel has established a valuation
allowance for the carryforwards that are not expected to be utilized.
Certain foreign subsidiaries have net operating loss carryfor-
wards totaling $172.2 million ($97.6 million with no expiration date,
$71.9 million expiring during the years 2001 to 2005, and $2.7 million
expiring after 2005).
Generally accepted accounting principles require that tax bene-
fits related to the exercise by employees of nonqualified stock options
be credited to additional paid-in capital. In 2000, 1999 and 1998,
nonqualified stock options exercised resulted in credits to additional
paid-in capital totaling $2.3 million, $15.0 million and $38.7 million,
respectively.
The Internal Revenue Service has completed its examination of
the Mattel, Inc. federal income tax returns through December 31, 1994.
NOTE 3 - EMPLOYEE BENEFITS
Mattel and certain of its subsidiaries have retirement plans covering
substantially all employees of these companies. Expense related to
these plans totaled $31.6 million, $18.6 million and $20.0 million
in 2000, 1999 and 1998, respectively. Expense for 2000 included
$10.8 million for retirement benefits related to the departure of
certain senior executives during the first quarter.
Pension Plans
Mattel provides defined benefit pension plans, which satisfy the
requirements of the Employee Retirement Income Security Act of
1974 (“ERISA”). With the exception of the Fisher-Price Pension Plan,
activity related to Mattel’s pension plans, including those of foreign
subsidiaries, was not significant during any year.
The components of net pension income for the Fisher-Price
Pension Plan, based upon a December valuation date for the years
ended December 31, 2000 and 1999 and an October valuation date for
the year ended December 31, 1998, are detailed below (in thousands):
For the Period Ended
2000 1999 1998
Service cost $ 2,609 $ 2,829 $ 2,508
Interest cost 12,173 14,655 10,929
Expected return on plan assets (23,843) (27,237) (18,949)
Amortization of:
Unrecognized prior service cost 109 88 108
Unrecognized net asset - (1,284) (2,569)
Plan amendment loss - 1,386 1,154
Net pension income $ (8,952) $ (9,563) $ (6,819)