Mattel 2012 Annual Report Download - page 60

million, and $53.8 million in 2012, 2011, and 2010, respectively, and is also included within other selling and
administrative expenses. As of December 31, 2012, total unrecognized compensation cost related to unvested
share-based payments totaled $76.5 million and is expected to be recognized over a weighted-average period of
2.0 years.
Income Taxes
Mattel’s income tax provision and related income tax assets and liabilities are based on actual and expected
future income, US and foreign statutory income tax rates, and tax regulations and planning opportunities in the
various jurisdictions in which Mattel operates. Management believes that the accounting estimate related to
income taxes is a “critical accounting estimate” because significant judgment is required in interpreting tax
regulations in the US and in foreign jurisdictions, evaluating Mattel’s worldwide uncertain tax positions, and
assessing the likelihood of realizing certain tax benefits. Actual results could differ materially from those
judgments, and changes in judgments could materially affect Mattel’s consolidated financial statements.
Certain income and expense items are accounted for differently for financial reporting and income tax
purposes. As a result, the tax expense reflected in Mattel’s consolidated statements of operations is different than
that reported in Mattel’s tax returns filed with the taxing authorities. Some of these differences are permanent,
such as expenses that are not deductible in Mattel’s tax return, and some differences reverse over time, such as
depreciation expense. These timing differences create deferred income tax assets and liabilities. Deferred income
tax assets generally represent items that can be used as a tax deduction or credit in Mattel’s tax returns in future
years for which Mattel has already recorded a tax benefit in its consolidated statement of operations. Mattel
records a valuation allowance to reduce its deferred income tax assets if, based on the weight of available
evidence, management believes expected future taxable income is not likely to support the use of a deduction or
credit in that jurisdiction. Management evaluates the level of Mattel’s valuation allowances at least annually, and
more frequently if actual operating results differ significantly from forecasted results.
Mattel records unrecognized tax benefits for US federal, state, local, and foreign tax positions related
primarily to transfer pricing, tax credits claimed, tax nexus, and apportionment. For each reporting period,
management applies a consistent methodology to measure unrecognized tax benefits and all unrecognized tax
benefits are reviewed periodically and adjusted as circumstances warrant. Mattel’s measurement of its
unrecognized tax benefits is based on management’s assessment of all relevant information, including prior audit
experience, the status of current audits, conclusions of tax audits, lapsing of applicable statutes of limitations,
identification of new issues, and any administrative guidance or developments. Mattel recognizes unrecognized
tax benefits in the first financial reporting period in which information becomes available indicating that such
benefits will more-likely-than-not be realized.
Mattel’s effective tax rate on income before income taxes in 2012 was 17.8%, as compared to 20.8% in
2011. The 2012 income tax provision includes net tax benefits of $16.0 million, primarily related to
reassessments of prior years’ tax liabilities based on the status of current audits and tax filings in various
jurisdictions around the world, settlements, and enacted tax law changes.
The 2011 income tax provision includes net tax benefits of $6.8 million, primarily related to reassessments
of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions around the world,
settlements, and enacted tax law changes.
The 2010 income tax provision includes net tax benefits of $16.8 million, primarily related to the release of
a valuation allowance related to the anticipated utilization of excess foreign tax credit carryforwards,
reassessments of prior years’ tax liabilities based on the status of audits and tax filings in various jurisdictions
around the world, settlements, and enacted tax law changes, partially offset by the incremental tax cost to
repatriate earnings from certain foreign subsidiaries for which income taxes had not been previously provided.
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