Mattel 2003 Annual Report Download - page 17

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Licenses and Distribution Agreements
Mattel has license agreements with third parties that permit Mattel to utilize the trademark, characters or
inventions of the licensor in product lines that Mattel manufactures. A number of these licenses relate to product
lines that are significant to Mattel’s business and operations. An important licensor is Warner Bros., which
licenses the Harry Potter™book and movie property for use on Mattel’s products as well as the master toy
license for Batman™,Superman™,Justice League™,and Looney Tunes™.Mattel has also entered into license
agreements with, among others: Disney Enterprises, Inc., relating to classic Disney characters such as Winnie the
Pooh and the Disney Princesses; Sesame Workshop relating to its Sesame Street®properties; Viacom
International, Inc. relating to its Nickelodeon®properties including SpongeBob SquarePants™and Dora the
Explorer™;Nihon Ad Systems Inc. for the master toy license to the Yu-Gi-Oh!™property worldwide, excluding
Asia; and Lyons Partnership, L.P. relating to Barney™,the purple dinosaur, as well as Barney™for Baby, for
infant and preschool toys, feature plush, electronic learning aids, games and puzzles.
Royalty expense during 2003, 2002 and 2001 was approximately $169 million, $210 million and
$220 million, respectively. See “Product Design and Development” and Item 8 “Financial Statements and
Supplementary Data—Note 9 to the Consolidated Financial Statements.”
Mattel also licenses a number of its trademarks, characters and other property rights to others for use in
connection with the sale of non-toy products that do not compete with Mattel’s products. Mattel distributes some
third party finished products that are independently designed and manufactured.
Trademarks, Copyrights, and Patents
Most of Mattel’s products are sold under trademarks, trade names and copyrights and a number of those
products incorporate patented devices or designs. Trade names and trademarks are significant assets of Mattel in
that they provide product recognition and acceptance worldwide.
Mattel customarily seeks patent, trademark or copyright protection covering its products, and it owns or has
applications pending for US and foreign patents covering many of its products. A number of these trademarks
and copyrights relate to product lines that are significant to Mattel’s business and operations. Mattel believes its
rights to these properties are adequately protected, but there can be no assurance that its rights can be
successfully asserted in the future or will not be invalidated, circumvented or challenged.
Commitments
In the normal course of business, Mattel enters into contractual arrangements for future purchases of goods
and services to ensure availability and timely delivery, and to obtain and protect Mattel’s right to create and
market certain products. Certain of these commitments routinely contain provisions for guaranteed or minimum
expenditures during the term of the contracts. Current and future commitments for guaranteed payments reflect
Mattel’s focus on expanding its product lines through alliances with businesses in other industries.
As of year end 2003, Mattel had outstanding commitments for 2004 and 2005 purchases of inventory of
approximately $93 million. Licensing and similar agreements with terms extending through 2011 contain
provisions for future guaranteed minimum payments aggregating approximately $295 million. See Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Commitments” and
Item 8 “Financial Statements and Supplementary Data—Note 9 to the Consolidated Financial Statements.”
Mattel ships products in accordance with delivery schedules specified by its customers, which usually
request delivery within three months. In the toy industry, orders are subject to cancellation or change at any time
prior to shipment. In recent years, a trend toward just-in-time inventory practices in the toy industry has resulted
in fewer advance orders and therefore less backlog of orders. Mattel believes that the amount of backlog orders at
any given time may not accurately indicate future sales.
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