Mattel 2014 Annual Report Download - page 81

percent likely of being realized upon ultimate settlement. 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 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 audits, conclusions of tax audits, lapsing of applicable statutes of limitations,
identification of new issues, and any administrative guidance or developments.
A reconciliation of unrecognized tax benefits is as follows:
For the Year
2014 2013 2012
(In thousands)
Unrecognized tax benefits at January 1 .............................. $111,370 $ 285,560 $262,560
Increases for positions taken in current year .......................... 9,886 12,997 14,800
Increases for positions taken in a prior year ........................... 53,221 14,289 21,030
Decreases for positions taken in a prior year .......................... (51,421) (186,555) (700)
Decreases for settlements with taxing authorities ....................... (9,493) (5,135) (800)
Decreases for lapses in the applicable statute of limitations .............. (13,206) (9,786) (11,330)
Unrecognized tax benefits at December 31 ........................... $100,357 $ 111,370 $285,560
Of the $100.4 million of unrecognized tax benefits as of December 31, 2014, $96.8 million would impact
the effective tax rate if recognized.
During 2014, Mattel recognized $2.4 million of interest and penalties related to unrecognized tax benefits,
which are reflected in provision for income taxes in the consolidated statements of operations. As of
December 31, 2014, Mattel accrued $18.1 million in interest and penalties related to unrecognized tax benefits.
Of this balance, $17.5 million would impact the effective tax rate if recognized.
In the first quarter of 2014, Mattel adopted ASU 2013-11, Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which
generally requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the
financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax
credit carryforward is not available at the reporting date to settle any additional income taxes that would result
from the disallowance of a tax position or the applicable tax law does not require the entity to use, and the entity
does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented
in the financial statements as a liability and should not be combined with deferred tax assets. Mattel reclassified
unrecognized tax benefits of approximately $44 million, primarily recorded within other noncurrent liabilities,
against its noncurrent deferred tax assets upon adoption in the first quarter of 2014. There was no impact on
Mattel’s operating results.
In the normal course of business, Mattel is regularly audited by federal, state, local and foreign tax
authorities. In May 2014, the IRS completed its audit of Mattel’s 2010 and 2011 federal income tax returns.
Mattel files multiple state and local income tax returns and remains subject to examination in various of these
jurisdictions, including California for the 2008 through 2014 tax years, New York for the 2007 through 2014 tax
years, and Wisconsin for the 2008 through 2014 tax years. Mattel files multiple foreign income tax returns and
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